nr 

vS \'cL C ] 

.K47 






f 








\ 










» 










t 


A History 

°f 

RATION BANKING 


v. 



A History 

°f 

RATION BANKING 


Joseph Alexander Kershaw 



OFFICE OF TEMPORARY CONTROLS 
Office of Price Administration 









-Historical Reports on 
War Administration 

OFFICE OF TEMPORARY CONTROLS 
Office of Price Administration 

General Publication No. 2 


\ * 


For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington 2 5, D. 

, Price 35 cents 





> ' 


LETTER OF TRANSMITTAL 


April 25, 1947. 

My Dear Mr. McCullough : I hand you herewith a volume entitled 
A History of Ration Banking, prepared by Joseph A. Kershaw, the 
first chief of the Ration Banking Branch. It is one of the narrative 
and analytical studies in the OPA series of Historical Reports on 
War Administration. As such, it is a part of the agency’s share in 
the comprehensive program of studies of the experience of the civilian 
administrative agencies brought into being by the war, which was 
initiated by President Franklin D. Roosevelt in 1942 and confirmed 
in July 1945 by President Harry S. Truman. The general scope and 
purpose of this program is set forth in the preface to the United States 
at War, recently published by the Bureau of the Budget. 

The present.volume relates how OPA borrowed, for a purpose unique 
in American history, the facilities and services of the Nation’s com¬ 
mercial banks; and it analyzes the problems involved in the banks 57 
handling of ration currency. OPA of course availed itself of outside 
assistance in many quarters to accomplish its manifold tasks, some 
of it compensated and much purely volunteer—the schools to distrib¬ 
ute war ration books, the radio to broadcast public information, the 
bulletins of manufacturers and trade associations to carry trade in¬ 
structions, for example. Nor was OPA alone among government agen¬ 
cies in adapting the institutions of a free society to perform the work 
of protecting the country against the dangers the war brought to the 
domestic economy. But the story of ration banking has no counter¬ 
part in OPA annals. Practically every commercial bank was enlisted 
in 1943, for the duration of rationing, to perform an integral function 
in the administration of rationing, fundamental to the successful 
conduct of the entire program. For this they were compensated only 
to the extent of covering out-of-pocket expenses. Accounts were 
opened with a large proportion of the wholesalers and retailers dealing 
in rationed commodities; deposits were made, checks paid and cleared,, 
tokens issued and changed for coupons; overdrafts were reported and 
stolen and forged currency traced. The whole machinery for handling, 
and safeguarding new and unfamiliar forms of currency was provided.. 
In these terms the story affords an outstanding illustration of success¬ 
ful cooperation between government and commerce, of interest to all 
who are concerned with the harmonious development of the interplay 

• • • 

111 


0 


j V Letter of Transmittal 

of social controls and private enterprise, and more specifically to stu¬ 
dents of public administration. 

This study has another and more technical interest. There are dis¬ 
tinct limits on the analogy between ration currency and ordinary 
money, associated with the special functions and purposes of cur¬ 
rency in a system of rationed distribution. For that reason some 
of the functions banks are accustomed to perform with money deposits, 
such as making loans and controlling overdrafts, were out of place 
in the system of ration banking. The experience analyzed in this 
volume therefore illuminates in a new perspective many of the ac¬ 
cepted principles of commercial banking, and deserves the attention 
not only of bankers but also of students of banking and economists 
generally. 

The plan of procedure in the preparation and publication of this 
volume follows the same lines approved at the time the first of our 
substantive publications, The Beginnings of OPA, was undertaken. 
The author’s name on the title page indicates that he has been given 
both freedom and responsibility for the development of his material. 
He has had full access to file materials in the agency so far as physical 
limitations permitted their use, and has had the benefit of consulta¬ 
tion and advice from many official and unofficial sources; but the state¬ 
ments of fact and of interpretation are his. It would indeed be phys¬ 
ically impossible for the agency at this stage to guarantee, 1 by an 
independent checking, the complete factual accuracy of the text; and 
it would be both impossible and undesirable for it to attempt here to 
impose an official view in the evaluation of its many past activities. 
The author is personally responsible on both counts. His manuscript 
has therefore been reviewed by the Policy Analysis Committee, con¬ 
sisting of yourself, Carl A. Auerbach, Ervin H. Pollack, Donald H. 
Wallace, and myself, only to make sure that statutory requirements 
relating to the disclosure of confidential information have been ob¬ 
served, and to safeguard appropriate standards of scholarship and 
objectivity. The decision on publication rested with this committee, 
so far as the agency was concerned. 

Sincerely , 

PIarvey C. Mansfield, Chief , 

Policy Analysis Branch. 

Hon. Max McCullough, Commissioner , 

Office of Price Administration, Office of Temporary Controls. 


AUTHOR S PREFACE 


This study is concerned with the use of the Nation’s commercial 
banks in the consumer rationing programs during the World War 
II emergency. These programs brought with them a supplementary 
currency system; to enable “ration currency” to be handled and con¬ 
trolled, assistance of the commercial banks was solicited and secured. 
For several years these economic institutions were an integral part 
of the wartime controls. The development and operation of the 
process whereby this was accomplished is the subject of the pages 
that follow. 

The author was originally chairman of the ration banking working 
committee in the Office of Price Administration, then chief of the 
Ration Banking Branch, and finally (until September 1945) Director 
of the Ration Currency Control Division, of which the Ration Bank¬ 
ing Branch was a part. Preparation of the volume was completed 
while the author was a member of the staff of OPA. 

This close relationship with the administrative process which the 
study describes and analyzes has had the advantage of making ac¬ 
cess to the records relatively simple, and of making possible many 
interviews and discussions which would otherwise have been difficult 
if not impossible. However, so intimate a participation in every 
phase of the program’s development may cast some doubt on the 
study’s objectivity. Accordingly, every effort has been made to de¬ 
scribe and analyze the program dispassionately and to avoid the role of 
defender, with what success the reader must judge. 

The operation of OPA, like that of most wartime emergency agen¬ 
cies, was such that its historical record cannot be reconstructed from 
an examination of documentary evidence. Conferences and meetings, 
and the decisions that emerged from these discussions, were usually 
unrecorded, with the result that much of the agency’s history must 
be reconstructed from fragmentary notes and from the recollections 
of participants. The present contribution is no exception. None¬ 
theless, the author has attempted to document statements wherever 
appropriate records are available, particularly those most in need of 
support. In many instances it has been necessary to make reference 
to unpublished material such as memoranda, letters, and reports. 
Such materials are now in OPA files, but by June 30, 1947, will have 
been transferred to the National Archives where they will be available 


v 


vi ' Author’s Preface 

to interested students under the classification “Record Group 123, 
National Office Rationing Files.” 

A number of former colleagues and other interested persons have 
read the manuscript and offered valuable suggestions. Most im¬ 
portant of all, Prof. R. J. Saulnier of Columbia University has 
patiently and sympathetically given of his counsel.- The author’s 
debt to him is great. 


April 1947. 


V 


CONTENTS 

Page 

Letter of Transmittal_ iii 

Author’s Preface_ v 

Chapter I.—Rationing in the Wartime Economy__ 1 

When and Why Commodity Rationing was Undertaken_ 1 

What Rationing Accomplished__ 2 

Offensive vs. Defensive Rationing_ _ _ 4 

Kinds of Rationing_'_ 5 

Ration Currency—Nature and Behavior_ 7 

Regulating Ration Currency_ 9 

The Dilemma of Expiration Dates_ 12 

Two Practical Considerations_ 14 

Chapter II.—-The Early Ration Currency “Flow-Back System”_ 17 

The Sugar Edow-Back System_ 17 

The Gasoline Flow-Back System_ 19 

The Upstream Flow of Stamps, Coupons and Certificates_ 19 

The Local War Price and Rationing Board Exchange Mechanism_ 21 

Chapter III.—The Study of Ration Banking_ 23 

The Committee Structure_ 23 

The British Coupon Banking Plan___ 24 

The First OPA Ration Banking Plan_ 24 

Some Basic Unresolved Problems_ 25 

Discussions Outside the Agency_■_ 28 

The American Bankers Association_ 29 

Two Alternative Proposals_ 30 

Chapter IV.—The Experiment in Ration Banking_ 33 

Selection of the Test Area_ 34 

The Trade Education Program_ 34 

The Bank Education Program_ 35 

The Ration Banking Plan as Installed in New York State_ 36 

Cost_ 42 

Quantitative Description of the Experiment_ 42 

Results of the Experiment_ 43 

Chapter V.—The Installation of Ration Banking_ 45 

Settling the Check Clearance Problem_ 45 

Trade Eligibility for Ration Banking_ 47 

The Manual of Operating Procedure_ 48 

Bank Forms_ 48 

Bank Education_ 49 

Trade Education_ 49 

The Program Begins_ 49 

Chapter VI.—The Development of Ration Banking During 1943- 53 

Addition and Elimination of Rationing Programs. __ 53 

Ration Banking in the Fall of 1943_ 57 

The Small Food Retailer Problem- 57 

The Institutional and Industrial User Problem- 60 

• • 

Vll 














































Vlll 


Contents 


Page 

Chapter VII.—Verification of Stamps and Coupons Deposited in Banks. _ 63 

The Dispute with Organized Banking- 65 

The Verification Centers_ 68 

Bank Procedures and Verification Centers- 68 

The Operation of the Centers- 71 

The Debiting Program_ 71 

Chapter VIII.—The Ration Token Plan- 77 

Reasons for the Adoption of Tokens- 77 

The Token Plan_ 78 

Determination of Quantity of Tokens Needed- 79 

The Distribution of Tokens_ 82 

Quantities of Tokens Used_ 84 

Bank Procedures_ 86 

Withdrawal of Ration Tokens_ 89 

Chapter IX.—Financial Reimbursement to Banks_ 91 

The First Reimbursement Schedule_ 92 

The Renegotiation in August 1943_ 94 

Reimbursement for Ration Tokens_ 99 

Reimbursement Reduction, October 1944_ 101 

Chapter X.—Overdrafts_^_ 109 

Bank Reporting of Overdrafts_ 110 

Size and Significance of the Problem_ 112 

OPA’s Method of Combating Overdrafts_ 115 

The Question of Reversal of Credit_ 120 

Chapter XI.—Ration Bank Accounts for Government Agencies_ 127 

The Exempt Agency_ 127 

OPA Ration Bank Accounts_ 130 

The Ration Credit Draft_ 132 

Operation of Accounts by OPA_ 134 

Chapter XII.—The Legal Arrangements_ 137 

The General Nature of Rationing Regulations_ 137 

The Nature of the Ration Banking Regulations_ 138 

General Ration Order 3_ 139 

General Ration Order 3A_ 141 

General Ration Order 3B_ 141 

Disposition of These Regulations._L_ 142 

Chapter XIII.—Conclusion_ 143 

The Number of Participating Banks_ 143 

Bank Performance_ 144 

Supervision of Banks by OPA_ 147 

General Conclusion_ 149 










































CHAPTER I 


Rationing in the Wartime Economy 

Ration Banking existed only as a means of facilitating the opera¬ 
tion of commodity rationing programs. In order to understand it 
properly, therefore, a preliminary and general discussion of com¬ 
modity rationing is necessary. This chapter attempts to provide 
this general background and to serve as an introduction to the more 
specific discussion of ration banking which follows. 

When and Why Commodity Rationing Was Undertaken 

The rationing of a given commodity, or group of commodities, 
was undertaken by the rationing agency (the Office of Price Adminis¬ 
tration) only when authority to do so was delegated by the appropri¬ 
ate supply agency. Thus, the Petroleum Administration for War de¬ 
cided when gasoline and fuel oil should be rationed, and delegated 
authority to the Office of Price Administration to carry out the ration¬ 
ing program. Similarly, the Department of Agriculture decided 
when the various food products should be rationed, and so directed 
OPA. In spite of the fact that a number of different supply agencies 
determined whether, and when, a given rationing program should be 
undertaken, a fairly consistent policy with respect to these decisions 
was followed by the Administration. 

A rationing program was undertaken when (1) the commodity 
in question was “essential” to the civilian economy and (2) the de¬ 
mand for the commodity was greater than its supply at the controlled 
price. “Essentiality” was not subject to precise definition, but gen¬ 
erally an item was considered essential if inability to obtain it, or if 
a grossly inequitable distribution of it, would have a deleterious effect 
on the health or morale of civilians, or impede the war effort. In¬ 
ability to obtain gasoline, shoes or tires would keep war workers away 
from their jobs; lack of fuel oil would impair health; and maldistri¬ 
bution of food would react unfavorably on the war effort. 

An excess of demand over supply at the controlled price was caused 
generally by a reduction in supply coupled with an increase in demand 
as incomes rose. In some cases one factor predominated, however. 


1 



2 


A History of Ration Banking 
» 

For example, the dislocation in the supply-demand relationship in 
sugar was almost exclusively attributable to the reduction in supply; 
because of the low income elasticity of sugar, demand was not ma¬ 
terially increased as national income rose. A contrasting exception 
ma}^ be found in the meat situation. For most of the rationing period, 
the supply of meat was well above prewar averages, but a high income 
elasticity so increased the demand as national income rose as to dis¬ 
locate the supply-demand relationship seriously even at the higher 
supply levels. 

But rationing was not always undertaken when a shortage de¬ 
veloped in an essential commodity. Because the rationing agency 
worked under such pressure, and because shortages developed so 
quickly in many cases, administrative difficulties, budgetary, and 
other considerations frequently played a part in the decision to ration 
a commodity. For example, coffee was rationed and cigarettes were 
not, though the shifts in the supply and demand schedules of both 
commodities were extensive, and a case could have been made out 
for the rationing of either commodity on grounds of essentiality. 
Again, bicycles were rationed and apparel was not. The difference 
in the administrative difficulties inherent in operating apparel and 
bicycle programs was probably more important in this decision than 
grounds of essentiality. 

What Rationing Accomplished 

On April 27, 1942, President Roosevelt sent his Cost-of-Living 
Message to Congress. It contained the following paragraph : 1 

... it is obviously fair that where there is not enough of any essential commod¬ 
ity to meet all civilian demands, those who can afford to pay more for the com¬ 
modity should not be privileged over others who cannot . . . where any important 
article becomes scarce, rationing is the democratic, equitable solution. 

In the earlier phase of the war period, this rather elementary concept 
of the objective of rationing was embraced generally. It was ex¬ 
panded gradually as it became apparent that other goals could be 
achieved by rationing. Most of the theory of rationing, and its ad¬ 
ministrative techniques, developed empirically as the several programs 
grew. The primary objectives of the several programs were as follows: 

(a) Equitable distribution among consumers .—A primary consid¬ 
eration behind every rationing program was the desire to avoid an 
inequitable distribution of a commodity or group of commodities 
considered essential in the civilian economy. 

Rationing, in itself, neither reduced nor increased the supply of 
any commodity, but it had a major effect on its distribution. In the 


1 C. R., 77th Cong., 2d sess. P. 3691. 



3 


Rationing in the Wartime Economy 

absence of rationing and of effective price control, a commodity in 
short supply would be rationed by rising prices with the result that 
only the well-to-do could obtain it. With price control, and in the 
absence of rationing, the produce would go to the black market or 
to those who had the leisure to queue for it. In neither case could 
the resulting distribution be termed “equitable.” 

By and large, rationing succeeded in avoiding this type of distribu¬ 
tion. By giving each eligible person a license to purchase, and by 
determining eligibility and size of individual rations in such a way 
that the licenses to purchase approximately equalled the available 
supply of the commodity, eligible persons were assured of their shares. 

(b) Equitable distribution among areas. —Many important com¬ 
modities are produced in a relatively small number of areas. Nor¬ 
mally, they move out of these producing areas seeking a market. As 
the supply diminishes, or as consumer incomes and purchases increase^ 
the market areas tend to shrink toward the producing areas. More 
and more, the supply can be disposed of locally, enabling producers 
to avoid transportation and other costs. 

One of the very important accomplishments of rationing was to 
force a reversal of this trend and to push the product away from the 
producing areas. The purchasing power of those in all areas, with 
respect to the rationed commodity, was equalized, with the result that 
a more general and equitable geographical distribution took place. 
This accounts for the paradox of rationing in the midst of local plenty, 
as was sometimes necessary. The most striking examples of this 
situation are to be found in gasoline and fuel oil rationing. 

(c) The conservation of another product in short supply. —The 
most conspicuous example of this situation was the early Nation-wide 
gasoline rationing program. 2 A substantial store of the Nation’s 
supply of rubber was on the wheels of its automobiles; it could not be 
rationed since consumers already owned it. Nevertheless it was 
essential that it be conserved if wartime transportation was not to 
collapse. The result was the gasoline rationing program, launched 
before any gasoline shortage developed, which slowed the wheels and 
conserved the rubber. 

( d) The protection of a substitute for a produM in short supply .— 
At times it was necessary to ration a commodity, not because of a 
shortage in its supply, but because of an abnormal demand for it 
created by the shortage and rationing of an economic substitute. For 
example, there were times when the supply of butter would apparently 
warrant its removal from the ration list. This could not be done* 

2 Gasoline was first rationed on the Eastern seaboard only, because of a shortage of the 
commodity in that area. The reference in the text is to the extension of the program in 
December 1942. 



4 


A History of Ration Banking 

"however, simply because other fats such as lard were in very short 
supply. The demand for butter, consequently, was abnormally strong 
because those unable to buy lard or oleo or unwilling to spend points 
for them would have turned to butter to satisfy their unfulfilled de¬ 
mand for fats. 

A similar situation prevailed at times among meat products. It was 
sometimes necessary to continue to ration a given type of meat because 
the supply, while adequate under normal conditions, would have been 
insufficient to withstand the abnormal demand which existed because 
other types of meat were scarce and rationed. 

For many months it appeared that coal would have to be rationed; 
a program was ready to be installed almost at a moment’s notice. The 
interrelationships between coal and fuel oil are obvious; they are very 
close economic substitutes. Coal rationing was avoided because, 
among other reasons, the conversion of heating facilities from fuel 
oil to coal was costly and sometimes impossible because of lack of 
materials. The substitutes were prevented from acting in the cus¬ 
tomary fashion. 

(e) Rationing as an aid to price control .—In the commodity areas 
in which rationing was undertaken, price control was simpler to 
maintain than it would otherwise have been. This was the case simply 
because rationing reduced demand and thus relieved the pressure on 
the controlled price. 

To be truly effective in controlling the general level of prices, how¬ 
ever, rationing would have had to be far more extensive than it was. 3 
So long as only a segment of the national product was rationed, the 
tendency was to reduce pressures on those products rationed but to 
increase the pressure correspondingly in the unrationed areas so that 
the net increase in the cost of living would still be considerable. True 
general price control through rationing would have been achieved 
only by “expenditure rationing,” whereby each individual in the 
domestic economy was given a fixed sum of spendable income which 
was related to the supply of commodities produced at the desired 
price level. 

> 

Offensive vs. Defensive Rationing 

Rationing can be used as a positive technique for the regulation of 
the wartime economy, or it can be used as a defense against short 
supply for essential commodities. In the United States, the latter 
policy was followed. The Administration did not ration unless ab- 


8 The Research Division at OPA estimated that, at the height of rationing, commodities 
which in 1941 accounted for 20 to 25 percent of consumer expenditures were subject to 
rationing. Memorandum, R. H. Riley to J. A. Kershaw, “The Extent of Rationing,” 
December 30, 1946. 



5 


Rationing in the Wartime Economy 

solutely essential and followed the policy of terminating rationing 
programs at the earliest possible moment. To a considerable extent 
this policy can be explained by the desire to avoid pressures from in¬ 
terested trade groups, from Congressmen and from budget limitations. 
Basically, however, it stemmed from the novelty of the whole idea of 
rationing and America’s experience with it. The rationing picture can 
be understood only in view of the fact that at the time of the Pearl 
Harbor attack the Nation was totally unprepared for any form of 
consumer rationing. Not only was the idea alien to the people, but, 
except for a handful of men in Washington, practically no thought had 
been given by the Government to the possibility of having to ration 
consumer goods. 4 

The contrary policy might have been economically more desirable. 
For example, an apparel rationing program installed in 1942 or 1943 
would certainly have made possible greater stabilization of prices in 
that field and quite possibly would have avoided the supply and dis¬ 
tribution crisis that arose in the winter of 1945-46, particularly in 
meij’s clothing. Or again, the wisdom of abandoning meat rationing 
in November of 1945 might be questioned, not on the basis of avail¬ 
ability of supplies at that time, but because of the deteriorating effect 
on meat price control, an effect that quickly developed. 

Kinds of Rationing 

Given the varieties of products rationed by the Office of Price Ad¬ 
ministration, it was natural that a number of different kinds of ration¬ 
ing programs were developed. The programs were not devised ac¬ 
cording to any preconceived pattern, but on an ad hoc basis. 

(a) Universal vs. differential rationing .—In some rationing pro¬ 
grams, ration currency was issued to everyone in equal amounts. This 
was generally true of all the food programs, except that coffee ration 
currency was not issued to children. Such programs came to be 
characterized as universal rationing, since no attempt was made to 
vary the ration according to past usage or need. 

Other programs, such as tires, rubber boots, and fuel oil provided 
that only certain members of the community would receive rations 
and that the rations would vary according to the needs of the recipient. 
Thus, rubber boot certificates were issued only to certain types of work¬ 
ers and then only if need could be conclusively demonstrated. This 
type of rationing came to be known as differential rationing. 


4 Paul M. O’Leary, “Wartime Rationing and Governmental Organization,” The American 
Political Science Revietv, December 1945. O’Leary, who was the first head of the rationing 
organization, states (p. 1089) : “Pearl Harbor found the United States with no rationing 
plans, no rationing organization, and no real appreciation of the indispensability of ration¬ 
ing in an all-out war effort.” 



6 


A History of Ration Banking 


The theoretical categorization drawn above is not absolutely clear- 
cut. Under all the universal rationing plans, some persons received 
more than others. For example, the food rationing regulations all 
provided that additional rations could be issued on a doctor’s pre¬ 
scription, and the shoe regulations made it quite simple for additional 
rations to be obtained for growing children. 

The universal rationing programs, without exception, were included 
in the ration banking plan, because of the fact that they all made use 
of a large amount of ration currency, the physical handling of which 
created many problems. Most of the differential programs were oper¬ 
ated on a certificate basis; that is, when individual eligibility was 
demonstrated a certificate for the indicated number of units was issued 
to the applicant. Paper volume was never great; at any given time, 
the volume of certificates in circulation was not large. Bation bank¬ 
ing facilities were never considered essential or advisable for these 
programs. The two exceptions to these statements were gasoline and 
fuel oil, which, however, were the only differential programs using 
coupons. In both of these programs the number of units (gallons) 
of the product sold each month was large and, in consequence, the 
volume of paper used was also large. 

(b) TJnit rationing vs. point rationing .—Most of the rationing pro¬ 
grams were “unit systems,” that is, the ration currency was given a 
value of a definite number of units of the rationed commodity. The 
size of the ration was then changed from time to time by changing the 
value of the currency, or by changing the period which a given amount 
of it had to last. 

In shoes, a stamp was always good for one pair of shoes. The ration 
was reduced or increased by lengthening or shortening, respectively, 
the interval between validation of stamps. In gasoline, on the other 
hand, the A coupon had a number of different values at different times, 
and it also had a number of different validity durations. Both meth¬ 
ods were used in changing rations. To state this another way, the 
Office of Price Administration could alter the real rationing income 
in a unit rationing system either by changing the value of the cur¬ 
rency or by changing the consumer’s income rate. 

Point rationing was not basically different. In this system con¬ 
sumers were given a substantial number of points periodically and 
the rationed items were given “point prices.” The system was used 
when more than one item was rationed under one program. At the 
height of meat rationing several hundred items were rationed on what 
came to be called the “red point list.” 

The ration under point rationing, as under unit rationing, could 
have been changed by extending or reducing the length of time over 
which a given number of points had to last, though this method was 


Rationing in the Wartime Economy 


7 


never used. The ration was actually changed by altering the point 
prices of the rationed items from time to time, which is analogous to 
changing the value of a stamp in unit rationing. 

Point rationing had as its greatest advantage a considerable degree 
of flexibility and simplicity. Within a rather broad field the con¬ 
sumer was given a free choice; she was at complete liberty to spend 
her periodic allotment of points on any items included in the program. 
It was simple because she had only one kind of ration currency to under¬ 
stand, a matter of equal importance, incidentally, when applied to the 
trade. 

To permit a point rationing system to achieve the necessary flex¬ 
ibility and workability, it was essential that a substantial number of 
points be available to consumers. Forced multiple purchases, which 
would result from a point price of less than one point, were avoided. 
Hence, if the lowest valued item was set at one point per unit, the 
highest might be 20 or 30. Necessarily, therefore, substantial num¬ 
bers of points had to be issued. In addition, if points vrere too low, 
the point pricing task became difficult. The smallest possible point 
change of an item priced at two points is a 50 percent change, which 
was frequently too great. 

The result of all these considerations was that from 60 to 64 red 
points per month were issued to each consumer, and from 48 to 50 
blue points, except when many items were off the list. For a while 
this meant 16 red stamps and 12 blue stamps (at an average value of 
four points per stamp) for each of 130,000,000 ration book holders each 
month. The volume of paper was tremendous, a fact which had many 
important implications for the ration banking program. 

Ration Currency—Nature and Behavior 

While the rationing programs were operating, certain economic 
areas w T ere in effect served by two monetary systems. In many ways 
ration currency behaved like dollars, in others it did not. In most 
instances a knowledge of monetary principles made possible an accurate 
forecast of the behavior of ration currency in a given set of circum¬ 
stances. 

(a) Stamps and coupons .—The two terms “stamps” and “coupons” 
had best be used interchangeably to denote the small ration currency 
issued in large quantities to all or a large number of consumers. Un¬ 
fortunately, no definition is quite satisfactory since the different 
stamps and coupons came to be handled variously in the different pro¬ 
grams. Thus, most stamps and coupons were issued “as is” without 
being individually marked, but special shoe stamps were marked by 
the issuing district office, and for a while gasoline coupons were issued 
only after the local board had inscribed the applicant’s vehicle license 


8 


A History of Ration Banking 

number. Again, most stamps and coupons were issued to consumers, 
but some gasoline coupons (bulk and inventory) were issued to dealers. 
Finally, most stamps and coupons were small, but food coupons were 
relatively large. The only truly common characteristics were that 
they always contained a fixed imprinted value. 

(b) Certificates .—In every rationing program some use was made 
of certificates. These rationing forms were usually check size, and 
were made out in favor of a specific individual and for a certain 
number of units at the time of issuance. Generally speaking, they 
were issued to the trade rather than to consumers, although there were 
occasions when a consumer received a special ration in the form of a 
certificate. In those programs that came to be included in ration 
banking, most of the certificates were eventually replaced by the use 
of the ration check. In those not included in ration banking, the 
certificate was the only form of ration currency used. 

(<?) Tokens .—In the meat-fats and processed foods rationing, pro¬ 
grams, extensive use was made of ration tokens. They came into use 
in February 1944. 5 The blue tokens were withdrawn in October 
1944, 6 the reds in January 1946. 7 The tokens were slightly smaller 
than a dime, made of vulcanized fiber, and worth one point each. 

Ration tokens were introduced so that it would be possible to make 
change in rationing transactions, and so that the value of the indi¬ 
vidual red and blue stamps could be raised. Their introduction made 
possible a substantial reduction in the number of stamps in circulation, 
which was its major purpose, and simplified the two point rationing 
programs by enabling the establishment of a uniform value for all 
red and blue stamps. 

The tokens were the only form of ration currency which circulated 
freely and indefinitely. All other types were designed to be used 
once and then removed from circulation. The flow will be more 
carefully described at a later point; suffice it to say here that a stamp 
spent by a consumer was eventually destroyed by the Office of Price 
Administration after having been used for one purchase. The token 
on the other hand moved repeatedly from consumer to retailer and 
back, occasionally finding its way into and out of a bank. In this 
respect the tokens were closer to money than any other kind of 
ration currency. 

( d) Ration checks .—The ration check was the creature of the ration 
banking system. In behavior and appearance it was similar to ordi- 

5 Amendment 108 to Ration Order 16, February 17, 1944. 9 F. R. 1909. Amendment 9 

to Revised Ration Order 13, February 17, 1944. 9 F. R. 1908. 

0 Amendment 53 to Revised Ration Order 13, September 8, 1944. 9 F. R. 11113. 

7 Amendment 1 to Order of Revocation to Revised Ration Order 10, December 17, 1945. 
10 F. R. 15173. 



9 


Rationing in the Wartime Economy 

nary dollar checks, being made payable to a payee by the drawer, 
deposited in a bank by the payee or subsequent endorser, and cleared 
to the drawee bank for debit to the drawer’s account, where it was 
canceled and returned to the drawer with his statement. 

The ration check was designed to facilitate rationing transactions. 
The other currency (stamps, coupons and certificates) could have 
moved all the way through the trade channels without being replaced 
by ration checks, but for reasons to be discussed later, it was more 
convenient to deposit the rationing “money” as soon as possible and 
use the ration check to draw against the credit established by the de¬ 
posit. 

The ration check was used almost exclusively by the trade. For 
the most part consumers were unaware of its existence, though cer¬ 
tain types of commercial consumers, such as the owner of a fleet of 
trucks with a large gasoline storage tank, used ration checks exclu¬ 
sively in buying. They were also used by the Office of Price Admin¬ 
istration in issuing special rations. A typical example would be the 
issuance of the bi-monthly sugar ration to a large hotel. The ration 
check was drawn, of course, only by those with ration bank accounts. 

Regulating Ration Currency 

It was through the ration currency system that the actual distribu¬ 
tion of the rationed commodity was effected. Simply stated, the 
supply agency (Petroleum Administration for War in the case of 
gasoline and fuel oil, War Food Administration in the case of food, 
etc.) made available periodically a given supply of the commodity 
for civilian consumption, and the Office of Price Administration issued 
that much ration currency to consumers. By equating the outstanding 
ration currency to the plrysical supply, the Government was theoret¬ 
ically assured that the supply would be distributed equitably. 

Actually, of course, this is a great over-simplification of a complex 
problem. For a number of reasons it was never possible to achieve 
such an exact equation. For one thing, consumers never spent all the 
currency issued to them, so that it became necessary to estimate and 
allow for this factor, a difficult task. For another, production and 
availability were generally fairly even over a given period-but con¬ 
sumption might not be. For administrative reasons it was necessary 
to issue substantial supplies of currency to some consumers, the cur¬ 
rency to last a considerable period. For example, all “industrial users” 
of sugar (bottlers, bakers, confectioners) received their rations at the 
same time, once every three months. While there would be a sufficient 
quantity of sugar during the quarter for this currency to be honored, 
if they all attempted to buy their complete quotas at its beginning, 


741926—47 


2 



10 


A History of Ration Banking 

either some of them would be unable to do so, or many consumers 
with perfectly valid stamps would find it impossible to redeem them. 

Many complications were also injected by OPA’s inability to con¬ 
trol the ration currency system completely. Counterfeit currency 
became important in gasoline, meat, and sugar rationing; each coun¬ 
terfeit stamp or coupon purchased a unit of the commodity which was 
therefore not available for the holder of a legitimate stamp or coupon. 
Currency was sometimes stolen from local boards and other distribu¬ 
tion points. Sometimes the boards were inclined to be too generous, 
rather than to follow instructions carefully, in issuing special ra¬ 
tions; precise supervision of 5,600 local boards was not possible. 
There were many other tactics for evading the rationing restrictions, 
most of which will be discussed in later chapters. All of them com¬ 
plicated the task of equating ration currency to the allocated supply 
of the product. 

The existence of too little currency in the monetary system will 
cause prices generally to fall. Ration “prices,” however, were always 
fixed by OPA and could not legally fall. The result of a miscalcu¬ 
lation putting too little ration currency in circulation, therefore, was 
that the goods would not move from the shelves. This was always. 
certain to bring quick recriminations from the trade, particularly if 
the rationed items were perishable. Such recriminations were cer¬ 
tainly justified, for a rationing system should not impede the move¬ 
ment of a commodity already in short supply when it has been de¬ 
termined that the available supply should move to consumers. 

Too much currency in the monetary system will push prices upward. 
Here again such a result is not possible under rationing where the ra¬ 
tion prices are rigidly fixed. Too much ration currency in the system 
created a situation which the rationer dreaded almost more than any 
other, for it meant that shelves become bare while the legitimate de¬ 
mands (within rationing) of' some consumers were not satisfied. 
Queues developed for rationed commodities, and the available supply 
went to those with the leisure to wait, the very situation that rationing 
was designed to prevent. 

Such a lack of balance developed a number of times in both sugar 
and gasoline. Frequently it was dne to a series of local stringencies 
brought about by temporary break-downs in transport facilities in 
certain areas. No OPA rationing program was able to cope with 
this problem, since there was no mechanism for reducing rations 
in small areas. Where the excess of currency was general it could 
of course be remedied by a devaluation of the currently valid currency 
(as was done in fuel oil a time or two), by tightening up on issuance 
quotas (tires), or by elongating the validity period of the current 


11 


Rationing in the Wartime Economy 

stamp (shoes). Ordinarily, however, these remedies could not be 
made effective immediately. 

The two point programs presented rather special problems. While 
there was rarely if ever a real excess of ration currency, in the sense 
that a consumer was unable to spend her points on some items on the 
ration list, there were frequent shortages or apparent surpluses on the 
list. In the red program, for example, butter was for most people the 
most desirable item. People apparently made provision first for 
their butter needs, and then used their remaining points to what they 
considered their advantage. The result was that butter was difficult 
to control through point price manipulation. The effect of a sharp 
increase in the butter point price was sometimes scarcely seen in the 
sales of butter, but would reduce markedly the purchases of all or 
many other items on the red list. 

The butter situation was further complicated by the need to keep its 
point price divisible by four because of customary quarter-pound sales. 
With a point price of 12, therefore, the smallest reduction possible 
was by 33% percent, and this could not be risked if the supply was 
only slightly in excess of demand at 12 points. 

Inflexibilities and problems such as these, much more pronounced 
in the red than in the blue program, meant that some of the items 
were always slower movers than others and that there frequently 
appeared to be a shortage or surplus of red or blue currency. Another 
way of saying shortage or surplus of currency, of course, is to say 
that the point prices were generally too high or too low. Actually, 
general over- or under- issuance rarely occurred, but within the list 
certain prices were undoubtedly in improper relationship with one 
- another from time to time. This was inevitable, in spite of the fact 
that they were adjusted monthly, because there were so many items 
and because supply conditions changed so rapidly and unpredictably. 

Because of the difficulty of controlling the-various commodities 
within the red system, there were maity who urged that butter be 
removed from the red list and rationed on a unit basis like sugar. 
While this would unquestionably have afforded better butter ration¬ 
ing, it was never seriously considered because of an unwillingness to 
subject the trade and the consumer to still another ration currency 
system. Interestingly enough, the converse was true of sugar. From 
time to time it was proposed to include the sugar program in either 
the red or blue program. Because of the fear of being unable to 
control sugar adequately in view of its high demand inelasticity, this 
matter was not considered seriously. Decisions once made in ration¬ 
ing tended to become institutionalized rapidly. 


12 


A History of Ration Ranking 


The Dilemma of Expiration Dates 

The problem of expiration dates on food ration currency will be 
discussed in detail in the chapter on ration tokens. Some general 
comments, however, may be in order here. In the summer of 1943, 
when the major rationing programs had been launched, most of the 
regulations provided that the consumer currency would become invalid 
after a certain date if not used. Later in the programs most of these 
regulations were changed to eliminate these provisions, and the cur¬ 
rency, once issued, could be spent at any time. Finally, at Christmas 
of 1944, the food regulations were amended once more and expiration 
dates were reinstituted, though with some modifications. 8 These 
changes indicated the groping that took place in OPA for the solution 
to the expiration date dilemma. The simple fact was that it was 
unsatisfactory to have consumer currency expire and it was also 
unsatisfactory not to have it expire. 

The original decision to have a rather brief validity period for a 
given stamp was based on a desire to maintain close control of the 
product. In sugar, for example, a consumer stamp would be vali¬ 
dated for 2 pound's of sugar for a month. At the end of that month, 
the situation would be reevaluated, and another stamp validated, 
perhaps for a different amount or time. The previous stamp had 
been invalidated and could be dropped from all calculations. 

There were several defects in this procedure that rapidly became 
apparent. Even though a consumer might not need sugar, she was 
afraid to let the stamp expire for fear she might later need it. 
Since any ration is liberal for at least some people, “legitimate 
hoards” began to develop. Housewives acquired a strong fear of 
“losing” a valid stamp. When coffee rationing ended, consumer stocks 
were abnormally high and sales at retail immediately fell. There was 
no longer a stimulus to buy! Obviously, a rationing system ought 
not to stimulate unneeded purchases. 

Secondly, at expiration date time, the stores were frequently over¬ 
whelmed by anxious consumers. This was particularly true in food 
stores when blue, red and sugar stamps all expired at once. Normal 
business ceased for a day or two while the last precious ration stamps 
were spent. There were many stories of consumers imploring grocers 
to give them something—anything—“to take the last four red points.” 
In shoe stores there were instances of actual physical harm resulting 
from anxious crowds trying to avoid losing a stamp. 

8 Amendment 32 to Revised Ration Order 16, December 26, 1944. 9 F. R. 15054. Amend¬ 
ment 70 to Revised Ration Order 13, December 26, 1944. 9 F. R. 15054. Amendment 3- 

to Second Revised Ration Order 3, December 26, 1944. 9 F. R. 15048. 



13 


Rationing in the Wartime Economy 

Thirdly, in order to permit retailers to spend stamps that had ex¬ 
pired for consumers, it was necessary to fix a trade expiration date 
some days later than the consumer expiration date. This enabled 
merchants to take expired stamps from consumers, the stamps ostensi¬ 
bly valueless, and build up credit for later black market sales. This 
came to be called “stamp-snatching” and was one of the ways that 
the inventory responsibility of the merchant was avoided, since no 
rationed commodity was given by the retailer in exchange for such 
stamps. 

Finally, the retailer who had a ration bank account could make 
a deposit before the trade expiration date, and use the credit at any 
time. When the credit was posted to his ledger, the identity of the 
stamp was completely lost. The retailer without a bank account, how¬ 
ever, had to make a purchase before the trade expiration date or lose 
his stamps. This was an unfair situation and led‘to many instances 
of extending the dates in order to help the nonbanking retailer. 

For all these reasons, though primarily because the expiration dates 
forced sales, expiration dates on many types of ration currency were 
dropped. The most significant action of this sort was taken when 
ration tokens were introduced in the food point programs in early 
1944. 9 Tokens could not be expired periodically and it was not possi¬ 
ble to keep an expiring and a nonexpiring currency circulating side 
by side. 

The amount of unspent currency varied from program to program. 
If 10 percent of the currency issued in a given program was unspent 
and unexpired, after 10 months there was a backlog of unspent cur¬ 
rency equal to the amount validated in the current month. This back¬ 
log was like the sword of Damocles to the rationer. The probabilities 
were that it would never be spent, but an invalidation rumor might 
bring a substantial part of it flooding into the market. Or again, an 
attempt to reduce the ration might be nullified by merely bringing the 
backlog gradually into the market as consumers drew on it to maintain 
their rate of purchase. Since it was never possible to be sure of the 
behavior of this backlog the task of equating rationed demand to avail¬ 
able physical supply of a product became increasingly difficult. At 
best, the backlog would build up normally and have no effect on the 
program; at worst it could completely ruin the program. 

This problem became most acute in the food programs in 1944. 
Toward the end of the year the backlog amounted in total to two or 
more .months ration for each consumer, though of course it was not 

9 Amendment 108 to Ration Order 16, February 17, 1944. 9 F. R. 1909. Amendment 9 

to Revised Ration Order 13, February 17, 1944. 9 F. R. 1908. 



14 


A History of Ration Banking 

evenly distributed. 10 It was held by farmers who rarely needed then- 
full ration, by city dwellers who ate in restaurants, and by ordinary 
consumers “saving for a rainy day.” When it became necessary to 
put more foods on the ration lists and to raise point values generally, 
the decision was made to cancel the backlog, because of the fear that the 
effect of the proposed action would be nullified by the backlog 
if it were not invalidated. The invalidation step was reluctantly 
taken. It was exceedingly unpopular, but no other course seemed 
possible. 

Following this action expiration dates were reinstituted on food 
stamps, but the validity periods were set at 4 months. Thus, at the 
end of April the January stamps expired, but the consumer had Febru¬ 
ary, March, and April stamps (if they were unspent). This system 
seemed to permit’adequate budgeting, and the only persons having- 
stamps when they became invalid would surely not miss them. The 
compromise appeared to work satisfactorily. 

In shoes, expiration dates were never revived. On occasion past 
stamps were invalidated but only after studies had demonstrated that 
there were practically none left in consumers’ hands and then only 
with advance notice. The action was taken merely to simplify the 
currency structure and when it had no rationing effect. 

Two Practical Considerations 

The administration of the ration currency system in general and the 
ration banking system in particular can be understood completely only 
with full knowledge of two very important practical considerations. 
Both limited the effectiveness of the Olfice of Price Administration and 
both arose from the temporary nature of the agency and from condi¬ 
tions in the wartime period during which it operated. 

(a) The labor shortage .—The differential between w 7 eekly earnings 
in the distributive trades and in war manufacturing industries was 
substantial. For this reason the distributive trades, during the war, 
were forced to engage in a continuous and generally unsuccessful 
struggle to hold their labor supply. Almost without exception, retail 
stores, wholesalers and manufacturers subject to the various rationing 
programs were busier than they had ever been in their histories, and 
had less labor. In consequence, they complained continuously to OPA 
that they were unable to carry the complexities of the ration currency 
system and pleaded for relief and simplification. Many of the pleas 
w r ere perfectly legitimate. 

10 The backlog was 2.8 months in meat and in processed foods, and 2 months in sugar, 
in addition to the stamps validated for the month in which the survey was conducted 
Office of Price Administration, Twelfth Quarterly Report, p. 51. 



15 


Rationing in the Wartime Economy 

Those at OPA who were engaged in administering the programs 
were quite aware of the situation. After the programs had been 
generally installed (by the summer of 1943) many of the changes in 
the details were designed to relieve the trade burdens. The two most 
important single changes in the currency system—the installation of 
ration banking and of ration tokens—were made, at least in large 
part, with this point in mind. 

The ration banking system must also be viewed in terms of the 
labor shortage affecting banks. During the war the banking business 
expanded tremendously in all respects. The traditionally low bank 
wages were frozen by the wage stabilization program; not only was 
recruiting almost impossible but thousands of bank clerks left the 
banks for war industries. In spite of this, the banks were carrying 
at one time seven rationing programs for OPA, representing seven 
new currency systems for them. The implications of such a situation 
should be obvious. 

(h) OPA staff limitations .—Planning for the rationing programs 
always took place with full knowledge that there would not be enough 
personnel in the OPA field offices to administer a program properly. 
Many changes that should have been made were ignored because of 
this factor. And many improvements that were actually made came 
too late because of lack of staff in the Washington office. 

Presumably this situation was accounted for by the fact that OPA 
never achieved any popularity with the Congress and was unable to 
obtain the necessary funds for this reason. In addition, the budget 
problem was difficult because the economic situation changed so 
radically and unpredictably during the war period. Whatever the 
reasons, the fact remained that “field workload'’ was always a prime 
consideration in any plan, and Washington staff limitations tended 
to make the agency administer its programs in what came to be called 
a “crisis fashion”. It was not sound administration, but it was under¬ 
standable under the circumstances. 

The ration banking staff in Washington and in the 101 field offices 
never exceeded 300 persons, including stenographic and clerical help. 11 
This staff was expected to administer a program involving approxi¬ 
mately 15,000 banks and a million and a half depositors, an utterly 
impossible task. The story of the development of the program cannot 
be understood except in light of this situation. 


11 There were never more than 12 persons on the ration banking staff of the national office. 




CHAPTER II 


The Early Ration Currency "Flow-Back” System 

The ration banking program was developed and installed because 
the so-called “flow-back” system could not be made to operate without 
it, or something similar to it. In the United States, and in every other 
country where rationing was undertaken, the rationing programs were 
made to operate by the use of the flow-back system. 

In essence, the flow-back system meant that ration currency moved 
not only frgm consumers to retailers but upstream through the entire 
distributive system, at each stage an amount of ration currency equal 
to the ration currency value of the product transferred moving up¬ 
stream as the product moved down. At one stage, usually the manu¬ 
facturer or processor level, the currency was returned to the Office of 
Price Administration with an accounting to demonstrate that the 
amount of currency surrendered equalled the ration currency value of 
the product transferred during the reporting period. 

In addition, each firm below the level of distribution of the reporting 
firms had an inventory of ration currency plus rationed goods, as¬ 
signed by OPA in one of a number of ways, for which it was account¬ 
able at all times. The control at these levels was thus essentially 
automatic; a retailer who sold without acquiring ration currency 
would be unable to replace his stock, since his wholesaler could nob 
afford to sell to him without collecting currency. 

By removing the currency from the system at the manufacturer 
level, the real control was imposed at the point where there were 
fewest firms. This was most important administratively, since the 
number of reports to audit was relatively small. 

The flow-back systems in all programs were basically the same, 
though they differed somewhat in detail. A description of the sugar 
and gasoline system will explain the matter, and will reveal the reasons 
for the early decision to develop the ration banking system. 

The Sugar Flow-Back System 

When the sugar rationing program was launched all retailers and 
wholesalers were required to register with the Office of Price Admin- 




17 


18 


A History of Ration Ranking 

istration (in April 1942). 1 The details are not material to this 
discussion, but retailers were required to demonstrate what their sales 
of sugar were during a normal week. This was assumed to be the 
proper inventory of sugar at retail and was assigned to the retailer as 
his “allowable inventory.” If his physical sugar inventory at the time 
of registration was less than this figure, OPA issued him ration cui- 
rency to make up the difference. If his actual inventory was in excess 
of the figure, he was required to “pay” OPA the difference. From 
that time on he was subject to check by OPA at any time and was re¬ 
quired to have sugar plus sugar currency equal to the established- 
allowable inventory. 

The procedure for wholesalers was identical except that the whole¬ 
sale allowable inventory was two weeks’ normal sales. Neither a re¬ 
tailer nor a wholesaler could buy or sell without surrendering or re¬ 
ceiving ration currency exactly equal in value to the purchase or sale, 
and be able to account for his allowable inventory. OPA could never 
check all wholesalers or retailers, of course, because of a lack of man¬ 
power, but even in the absence of a check, illegal sales without currency 
were possible only to the extent of the allowable inventory; when that 
amount had been dissipated, the merchant would be unable to pur¬ 
chase supplies- and would have put himself out of the sugar business. 

Another class of merchants were subject to the sugar rationing sys¬ 
tem. Hotels, restaurants and others using sugar for consumption on 
the premises were known as “institutional users.” Bakers, bottlers and 
others using sugar in the process of manufacturing another product 
were known as “industrial users.” For purposes of this discussion 
they may be considered together. 

These sugar users had no allowable inventories. Periodically, they 
were issued ration currency by OPA which they were required to 
budget during the allotment period. They used this currency to pur¬ 
chase sugar, just as the retailer or consumer did. Institutional and 
industrial user purchases were made at retail, at wholesale and at the 
refinery level. 

The consumer currency and the industrial and institutional user 
currency moved up through the trade (as the sugar moved down) 
until it reached the primary producer or refiner. Since raw sugar was 
not rationed, the refiner had no allowable inventory and purchased 
the raw sugar without ration currency. Each month, the refiner sub¬ 
mitted a report to OPA indicating the number of pounds of refined 
sugar he had sold in the civilian market, accompanied by sugar ration 
currency equal in value to the reported sales. These reports were 


1 Ration Order 3, April 20, 1942. 7 F. R. 2966. 



The Early Ration Currency "Flow-Back System” 


19 


audited and frequently checked at the refinery; since there were only 
a few more than a hundred refiners, this task was relatively simple. 2 

Thus the cycle was completed. OPA issued currency periodically, 
either directly as with the institutional and industrial users, or by 
validating stamps in the consumer’s book at intervals. This currency 
moved through trade channels, purchasing sugar each time it changed 
hands, and eventually returned to OPA. 

The Gasoline Flow-Back System 

The gasoline system was basically similar to the sugar system. The 
gasoline dealer (retailer) and the “intermediate distributor” (whole¬ 
saler) registered with OP A at the beginning of t he program. 3 * * * * 8 Allow¬ 
able inventory in this case was established as the gallonage capacity 
of the gasoline storage tank on the premises. Gasoline currency was 
issued for the difference between the inventory on hand at the time 
of registration and the capacity of the tank. For the duration of 
rationing, the dealer was required to have ration currency plus gaso¬ 
line equal to his storage tank capacity. 

The “bulk consumer” of gasoline was analogous to the institutional 
and industrial user in sugar. The owner of a fleet of trucks having 
his own storage tanks, for example, was known as a bulk consumer. 
He was issued currency periodically by OPA which had to be budgeted 
over the entire allotment period. 

The “licensed distributor” of gasoline was analogous to the refiner 
in sugar. The flow of currency stopped with him and was turned 
over to OPA with an accounting. Licensed distributors in gasoline 
in every State pay the State tax on the gasoline and by agreement 
between OPA and the respective States, the gasoline ration currency 
accompanied the tax report. The currency was checked there against 
the amount of gasoline reported sold before being forwarded to 
OPA. 

The Upstream Flow of Stamps, Coupons, and Certificates 

Ration currency took a variety of forms. Generally speaking, 
consumers used stamps or coupons, issued to them infrequently in 
books and validated by OPA as rapidly as the supply permitted. The 
sugar program made use first of the stamps in War Ration Book One. 
In the beginning a stamp in each consumer’s book was made valid 


2 It may be remarked that in the meat rationing program, the primary distributor was 

either a packer or a farmer who did his own slaughtering. In the latter case control was 

exceedingly difficult. He was required to make the same sort of accounting as a sugar 

refiner or meat packer. There were so many of them, however, and they were so small, 

that many meat points were not retrieved by OPA. This was one contributing factor in 

the meat black market. 

8 Ration Order 5A, July 9, 1942. 7 F. R. 5225. 



20 


A History of Ration Banking 

each two weeks and each one was designated as being worth one pound. 
A gasoline book was issued to each automobile, with a block of coupons 
becoming valid periodically. In addition, extra coupons were issued 
to certain preferred classes. 

The consumer spent his stamps by presenting the book at the time 
of purchase, the stamps being removable either by the retailer or 
by the consumer in the presence of the retailer. The average re¬ 
tailer, of course, received a substantial number of stamps since the 
value of a single stamp had to be small enough to enable customary 
purchases at retail to take place. 

In order to avoid rationing transactions above the retail level in 
loose stamps which were physically unmanageable in bulk, OPA 
designed and provided gummed sheets to which retailers were re¬ 
quired to affix the stamps before transferring them. The early sugar 
sheet contained 100 consecutively numbered boxes, so that it was 
self-counting. The gasoline sheet contained 50 consecutively num¬ 
bered boxes. The flow of stamps and coupons from the retailer 
upstream, therefore, took place on gummed sheets exclusively. 

Generally speaking, certificates were issued to the trade. The 
periodic issuance of allotments to institutional and industrial users, 
for example, took place on certificates, and there were various adjust¬ 
ments from time to time calling for the issuance of certificates. 
Rationing certificates moved through the system by endorsement as 
individual pieces of paper. 

For purposes of this discussion the most significant fact about this 
currency was its volume. An accurate estimate of the volume of cer¬ 
tificates is not available; it was insignificant,,however, in relation to 
the tremendous number of gummed sheets. 

In the sugar program OPA was validating one stamp per person 
every two weeks, or 260,000,000 each month. After these came into 
the retail stores they were affixed to the gummed sheets before transfer. 
Because retailers generally purchased sugar when they could buy it, 
and because many of them could not wait until a gummed sheet was 
filled, the average gummed sheet contained about 50 stamps rather 
than 100. This meant that five million sugar sheets per month were 
in circulation. 

In gasoline the number of gummed sheets is more difficult to esti¬ 
mate because of the several different kinds of coupons of different 
values. But in May 1943 coupons worth 1,398,801,910 gallons were 
deposited in banks. 4 An average of five gallons per coupon is as 
good an estimate as can be made, or 275,000,000 coupons per month. 
The average number of coupons on a gummed sheet was only about 20, 


4 From the tabulation of the monthly statistical reports submitted by the banks to OPA. 



The Early Ration Currency (t Floiv-Back System” 


21 


since dealers were receiving 11 kinds of coupons, only 1 of which could 
be affixed to a given gummed sheet. About 13,800,000 gasoline sheets 
each month, then, were being used. 

The figures arrived at above changed, of course, as the supply of 
the product or the values of coupons changed. Volume remained at 
a high figure, however, throughout the programs. 

In the face of this volume, a method had to be available for convert¬ 
ing the large number of small value items into a small number of large 
value items. It would have been physically impossible, for example, 
for a hundred sugar refiners to handle 5 million sugar gummed sheets 
plus a probable quarter million sugar certificates each month, or for 
OPA to audit such a mass of paper. It was necessary to diffuse the 
task. 

The Local War Price and Rationing Board Exchange Mechanism 

The early method selected to solve this problem was to permit the 
exchange at OPA local rationing boards (of which there were then 
about 5,600) of gummed sheets for a certificate. The larger retailers 
in sugar, and the wholesalers and the primaries in both sugar and 
gasoline presented to local boards their accumulation of currency and 
received a single certificate for the value of the currency. 

In this way the stamp's and coupons were taken out of circulation 
at the lower levels of the trade, and several certificates were converted 
into a single certificate at the higher levels. From the sugar refiner 
and the licensed gasoline distributor at the end of the flowback, OPA 
could receive merely one certificate representing the entire month’s 
sales, instead of millions of gummed sheets. 

This exchange mechanism at the local rationing boards had a number 
of defects that became increasingly apparent as the programs and 
planning progressed during 1942. In the first place, the boards were 
neither properly staffed nor properly equipped for the task. Most 
board personnel was volunteer, and many boards had either only one 
or no paid clerks. They had as a rule no place to safeguard the gummed 
sheets turned in to them and cancellation was a most laborious process. 

The result was that inaccuracy tended to characterize the exchange 
process, and the currency sometimes leaked back into circulation. 
Merchants presenting gummed sheets for exchange were required 
to summarize their value, and the practice of issuing the certificates 
on the spot with the intent of checking the gummed sheets at a later 
date became general. Frequently the later date never arrived. 

When the certificate was issued it never returned to the board for 
audit, so that it was never possible to know when a certificate had 
been raised or issued fraudulently. Insofar as the exchange mechanism 


22 


A History of Ration Banking 

did not function properly, the integrity of the entire flow-back system 
was imperiled, and all of the above factors contributed to that peril. 

Secondly, the boards had many other functions to perform, mostly 
of an adjudicative nature. They were always overworked and simply 
did not have the time to devote to what was really a clerical and bank¬ 
ing function. Pleas from the OPA field organization for relief from 
this board workload became more and more fervent during 1942. 

Thirdly, the system was most inconvenient for the trade. Boards 
were alway busy so that each trip to a board meant a wait in line. 
Also, boards were frequently located away from the business centers, 
many of them in the early days in whatever rent-free place could 
be found. In many areas it was not possible for a merchant to get 
rapid and efficient service in the matter of exchanging his stamps. 

Finally, the shadow of meat and processed foods rationing was 
ever present during 1942. It was known that either of those programs 
would dwarf anything yet known in terms of the volume of currency. 
The meat program, when later introduced, injected into circulation 
16 stamps per consumer monthly, or 2 billion stamps, and the processed 
foods program only slightly less. The anticipation of these currency 
giants magnified many times the problems that were already being 
encountered with the board exchange mechanism. Before those pro¬ 
grams could be handled, a change of some sort had to be effected. 


CHAPTER III 


The Study of Ration Banking 

The Committee Structure 

During the spring of 1942, energetic planning for a number of new 
rationing programs was going forward. The persons charged with 
this planning were well aware of the deficiencies of the local board 
exchange mechanism, and several groups were independently seeking 
a solution to the problem. Most interested were those planning the 
programs for apparel, for canned foods and for meats, in all of which 
the volume of ration currency would be great. 

Because of the need for central planning and for a single point of 
contact within OPA’s Rationing Department with other Federal 
agencies and the banking organizations, a committee was established 
on June 15, 1942, “to devise a plan for the exchange through banking 
devices or otherwise of ration coupons and certificates.” 1 This com¬ 
mittee was composed of five members, one from each of the four com¬ 
modity operating divisions and the Executive Officer. 

A working or subcommittee was also established, also having five 
members, each of whom was a subordinate of one member of the parent 
committee. The subcommittee developed the plans and carried on 
almost all the discussions with those outside the Agency, meeting 
almost daily for about 4 months, and meeting with the parent com¬ 
mittee about every second week to report and receive direction. In 
this instance the committee form of operation was most successful, 
functioning energetically until it was dissolved in the fall of 1942, 
and replaced by the establishment of a ration banking section in the 
Deputy Administrator’s office. At that time no interruption in the 
development of policy occurred since the chairman of the subcom¬ 
mittee became head of the section, reporting to the Executive Officer 
who had been chairman of the parent committee. 


1 Memorandum from Paul M. O’Leary, Deputy Administrator in Charge of Rationing, 
June 15, 1942. 


23 





24 


A History of Ration Banking 


The British Coupon Banking Plan 

The British Board of Trade had announced, in the spring of 1942, 
•that a coupon banking plan for apparel would be instituted on July 1, 
replacing the unsatisfactory post office exchange system that was used 
prior to that date. Knowledge of this program was available at 
OPA so that even before the formation of the committee there had 
been some study of the British plans. They continued to be studied 
carefully by the OPA committees and had a profound influence on the 
early American planning. For this reason an outline of the coupon 
banking system in Great Britain is in order. 

The British apparel rationing program was a point system. Stamps 
in the consumer’s ration book were validated periodically and apparel 
items were assigned point prices. When the stamps were received by 
the retailer, he deposited them in his bank where the appropriate 
number of points were credited to him on a regular ledger card bearing 
his name. 

When the retailer purchased apparel from a wholesaler, he made 
use of what was called a “transfer voucher.” This was a three-part 
form, containing a stub attached by perforation on either side. All 
three parts were filled out by the merchant, the two stubs containing 
the date, the drawer’s name, and amount, and the main portion the 
payee’s name and the drawer’s signature in addition. 

The left-hand stub was detached by the drawer as his record of the 
debit, the right-hand stub was detached by the bank and used to enter 
the debit against the drawer. The central portion was the actual 
check, and was certified by the bank and then forwarded by the drawer 
to the payee. The banks were authorized to require the drawer to' 
leave the transfer voucher at the bank for 24 hours, presumably to 
avoid tie-ups at teller’s windows while the balance was verified with 
the bookkeeper and the voucher was certified, but little use was made 
of this privilege. 

When the transfer voucher was deposited by the payee in his own 
bank, it was forwarded to the Board of Trade by the bank of deposit, 
and not cleared to the drawee bank. The Board of Trade made a 
practice of returning to the drawee banks a small number of transfer 
vouchers as a spot check against raises and forgeries, but never con¬ 
sidered it necessary to institute a clearance system. 2 

The First OPA Ration Banking Plan 

While there were many subsequent modifications, the OPA sub¬ 
committee was in agreement by July 1942 on the basic outline of a 


2 The German ration banking system was also studied briefly—it was so complex, how¬ 
ever, that it offered little help as a model. 



25 


The Study of Ration Banking 

ration banking program. The diverse, dual banking system in Amer¬ 
ica would make the problem of supervision more difficult here than in 
England 3 and there was some discussion as to whether to qualify 
all banks, or all national banks. It was finally decided to make eligible 
all banks operating under State or Federal laws carrying commercial 
checking accounts. The controlling factor in this decision was a deter¬ 
mination to disturb as little as possible existing bank-customer 
relationships. 

The early plan proposed to have all those who opened ration bank 
accounts operate exclusively through these accounts; that is, the 
transfer of stamps, coupons or certificates was to be forbidden. They 
had to be deposited. Behind this decision was the desire to make the 
merchant’s ledger reflect all his rationing transactions as an enforce¬ 
ment aid. 

The British transfer voucher was copied in the early OPA plan, 
though, principally because banks were less accessible in this country, 
it was not planned to force any merchant to wait 24 hours to have 
his voucher certified. Unlike the British program, OPA planned to 
have the vouchers returned by the bank of deposit to the drawee bank 
through regular clearance channels, though the details were not 
thought through at that time. Clearance was felt to be essential 
because, without it, it would be far too easy for a teller to certify a 
voucher and destroy the debit stub so that no debit would ever be 
entered against the drawer. 

It was assumed that transfer vouchers and deposit slips would have 
to be printed, but that no new ledger sheets or other internal forms 
would be needed. There was no need for standardizing these latter 
forms; regular commercial banking forms could be used for ration 
banking also. 

Some Basic Unresolved Problems 

Although it was not fully realized at the time, the early plan was 
far from complete. Leaving aside, however, the many details that had 
to be filled in later, there were several problems that loomed large even 
at that early date, some of which were not solved for many months. 
The solutions to these problems will be described in later pages; here 
their nature only will be indicated. 

(a) C ertification and clearance .—The plan outlined above called for 

the certification of transfer vouchers, which later came to be called 

ration checks, and their clearance to the drawee bank. Actually, the 
__ \ 

3 In this connection it is interesting that the following sentence appears in an early 
memorandum on British rationing problems (May 22, 1942) by the author: “Coupon 
banking might work here [i. e., in the U. S.], but the nature of our banking system lends 
one to make mental reservations.” 

741926—47--3 




26 


A History of Ration Banking 

committee had not reached a final decision on this point, which was 
the most thoroughly discussed of all the early ration banking problems. 

In the matter of handling checks, three alternatives were open. 
First, checks could be certified by the drawee bank and returned in 
clearance to it for verification of the debit. Secondly, checks could 
be issued by the drawer, not certified by the bank, and cleared after 
Ideposit. This was the method ultimately adopted. Thirdly, the 
British example could be followed whereby checks were certified but 
not cleared. Actually, the third alternative was never seriously con¬ 
sidered, so that the discussion centered around whether to have ration 
checks certified or not, and how to clear them. 

The advantage in requiring that all checks be certified, of course, lay 
in the fact that it would avoid any possibility of checks being drawn 
against insufficient or nonexistent funds. There was no way of know¬ 
ing to what extent such a practice would develop, though it was ex¬ 
pected that there would be a certain amount of it. 

Three points argued against the requirement of universal certifica¬ 
tion. In the first place, while very little was known about bank costs 
at the time, it was clear that it would be more costly to have checks 
certified than not. Secondly, and much more important at the time, 
deliveries of rationed goods were most irregular and uncertain. A 
merchant was never sure when he would receive a delivery or how 
much it would amount to. Most of the early rationing regulations 
required that ration currency be paid at or before delivery. It would 
be almost impossible for the merchant to have a certified check ready, 
in light of the foregoing facts, when the delivery arrived. - Prior pay¬ 
ment might have solved this problem, but many merchants were unable 
to afford prior ration payment, and even if they were, there was no 
guarantee that complete delivery would or could be made on any given 
order. 

Finally, many banks in war communities found their volume of 
business tremendously expanded. In many banks, lobbies were 
jammed during the entire business day. It was questionable whether 
such banks would be able to carry a rationing load that entailed a 
substantial number of check certifications. 

The question of how to clear checks was not faced squarely in the 
early days, because of the fact that no members of the OPA committee 
01 subcommittee had technical banking knowledge. It was assumed 
that local clearing houses and the Federal Reserve banks would be 
used, but such problems as the settlement of interbank balances were 
not then considered. 

(b) Trade eligibility for ration banking .—It was realized that for 
a number of reasons it would not be practicable to require all retailers 


27 


The Study of Ration Banking 

to have and use ration bank accounts. In the first place, this would 
have imposed too great a strain on the commercial banking system 
when all the rationing programs were installed. In the second place, 
many of the small retailers were not accessible to banks and were 
unfamiliar with banking procedures so that it would have been dif¬ 
ficult both for them and the banks to learn a new way of doing business. 
Besides, they did not receive enough currency to need the use of bank¬ 
ing facilities, and OPA had little to gain, enforcement-wise, by forcing 
them into banking. 

On the other hand, OPA generally considered it advantageous to 
have as many rationing transactions as possible go through the banks. 
From an enforcement point of view, OPA felt its task would become 
easier if the rationing activities of a merchant were reflected on a 
ledger sheet. In this sense, it was to OPA’s interest to have as many 
retailers as possible open bank accounts. 

The problem of where to establish this “cut-off” line was considered 
many times and was answered tentatively only shortly before the pro¬ 
gram was launched nationally in January 1943. Actually the solution 
then reached was not the proper one, as experience soon indicated, and 
two or three rather basic changes had to be made before the matter 
was settled. 

By and large this was a food problem only. In gasoline, an early 
decision was reached to require distributors to have bank accounts but 
not to permit retailers to participate. This decision was reached be¬ 
cause it was so difficult for the average retail dealer to get to a bank, 
because the method of auditing a retailer required that he keep his 
coupons on the premises, and to some extent because those in OPA 
charged with administering the gasoline program were not particu¬ 
larly sympathetic toward the idea of ration banking. 

(c) The cost of ration hanking .—The matter of cost of a ration 
banking program was deferred during the early planning days. It 
was realized that the banks would have to be reimbursed in some fash¬ 
ion but this problem was almost completely unexplored by the OPA 
committee; it was hoped that help could be obtained from one of the 
Federal banking agencies on this score, or from organized banking. 

The OPA committee convinced itself early that, whatever the cost 
might turn out to be, it would be less than any alternative program 
that could be evolved. This reasoning was based on the assumption 
that bank employees and machines were idle a part of the time and 
could lie utilized for ration banking, and that only in the case of the 
very largest banks w’ould it be necessary for additional space oi equip¬ 
ment to be procured. In other words, it seemed reasonable to assume 
that in most banks ration banking could be done in spare time in spare 


28 A History of Ration Banking 

space on spare equipment. Supervision was already there and very 
few new techniques would have to be learned. By and large this turned 
out to be a reasonable assumption. 

The committee was also impressed with the fact that it seemed 
forbiddingly costly even to think of expanding the local rationing 
boards to handle the exchange mechanism. Quite aside from any non- 
labor cost, it would have cost in excess of $11,000,000 per year to put 
only one $2,000 clerk in each of the 5,600 boards, and one clerk per 
board would scarcely have scratched the surface of the problem. 

For these reasons, the committee felt that it was more essential to 
get the plan perfected than to worry about its cost. They w T ere con¬ 
vinced that, whatever the cost might eventually turn out to be, no less 
expensive alternative method could be developed. If this was the case, 
the money would be found when the time came. 

Discussions Outside the Agency 

By the latter part of June the committee felt that its plans had 
progressed far enough so that more expert counsel should be sought. 
The committee sought the answers to three specific questions: 

(1) Was the idea in general feasible ? 

(2) Should ration checks be certified or not ? 

(3) What would the plan cost OPA? 

These questions were put first to officials of the Federal Deposit 
Insurance Corporation on June 30, 1942. The answer to the first 
question was in the affirmative. The answer to the second w T as equivo¬ 
cal : from the banking point of view either method could be handled, 
although certification would undoubtedly be more expensive. OPA 
should decide whether the rationing program needed certification; if 
so, the banks would probably be able to handle it. To the third ques¬ 
tion no answer could be given by the corporation but the suggestion 
was made that the American Bankers Association could probably 
give assistance on this point. 

On July 3 the matter was discussed with officials of the Federal 
Reserve System. Here again officials felt that the plan was feasible 
and could be installed. On the matter of certification they disagreed 
among themselves as to the proper course of action for OPA to fol¬ 
low, though agreeing that certification would be more costly. Some 
of them also made the point that the labor situation in banks was go- 
ing to become stringent and that a certification requirement might 
prove too burdensome to the banks. With respect to cost, they also sug¬ 
gested the American Bankers Association as the best source of in¬ 
formation, and could offer nothing concrete themselves. 

One other source of early assistance warrants discussion. The Su¬ 
perintendent of Banks of the State of New York recommended to the 


29 


1 he Study of Ration Banking 

OPA committee that the plan be submitted for study and comment 
to the comptroller of the Manufacturers Trust Co., in New York City. 
This suggestion was followed. In August a careful and exhaustive 
report was submitted on the OPA plan, stating, as a general conclu¬ 
sion : “After carefully studying the proposed plan I have come to 
the conclusion that effective control of the rationed commodities can 
best be accomplished by having the national and state chartered com¬ 
mercial banks act as the clearing agency.” 4 

This report endorsed the OPA plan as sound with one exception. 
It rather convincingly demonstrated that the requirement that ration 
checks be certified was impractical and expensive, and that very little 
would be lost to the rationing programs if it were dropped. The sig¬ 
nificance of the report was two-fold. In the first place, it convinced 
OPA that the idea of certification should be abandoned. Secondly, 
it laid to rest any fears that OPA may have had as to the general feasi¬ 
bility of the ration banking plan. From the time this report was re¬ 
ceived, OPA stopped attempting to confirm its own judgment that the 
proposal was sound and turned its efforts toward the installation of 
an actual experiment. 

The American Bankers Association 

A large share of credit is due the American Bankers Association 
for its assistance and advice in the administration of the ration bank¬ 
ing program. During the summer of 1942, however, there were a 
number of misunderstandings between the Association and OPA, and 
very little constructive assistance was forthcoming until the appoint¬ 
ment, on September 30, of a duly constituted ration banking commit¬ 
tee to act for the Association. 

The first meeting between OPA and ABA was held on July 9, 1942, 
having been arranged by the Federal Deposit Insurance Corporation. 
It was exploratory only. Tentatively, the Association members ex¬ 
pressed the feeling that the plan might be made to work, that it would 
be a serious mistake to incorporate a check certification feature, and 
that the plan should be submitted to a group of operating bankers 
for their ideas as to feasibility and cost. It was agreed that for this 
purpose additional meetings would be arranged by ABA, following 
the preparation of a more specific and extensive description of the 
plan by OPA. 5 

These additional meetings were not held. On several occasions dur¬ 
ing July and August, meetings were scheduled but cancelled by ABA. 
At one time the Association indicated that counterproposals would be 
formulated, but this was not done. The two groups did not meet dur- 

4 Charles C. Clough, “Review of Proposed Stamp Banking Plan of Rationed Commodi¬ 
ties with Recommendations.” No date. (A report to the Office of Price Administration). 

5 Memorandum, W. C. Dickson to J. A. Kershaw, “Bank Plan,” July 10, 1942. 



30 


A History of Ration Ranking 

ing the summer, with the unfortunate result that OPA did not re¬ 
ceive the constructive criticism which it hoped to obtain through the 
Association during the planning stage of the program. 

This situation was happily terminated by the appointment of a 
Kation Banking Committee by the Association in September 6 and the 
appointment of a subcommittee instructed to offer constructive criti¬ 
cism of the ration banking experiment in New York State. This sub¬ 
committee worked hard and well, and the full committee also gave 
generously of its time and counsel. 

Two Alternative Proposals 

During September two alternative proposals were vigorously pro¬ 
posed by a New York banker. Both arose from his fear that the plan 
as proposed by OPA would prove too burdensome for the banks. 

The first proposed that, in the food programs, only wholesalers and 
processors would have ration bank accounts. To permit the boards 
to be relieved of the burden of exchanging stamps for certificates for 
the large retailers, a “redemption clerk” would go from place to place 
carrying “coupon vouchers,” or large-denomination stamps, with 
which he would redeem the retailers’ stamps and thus reduce the 
volume of currency that passed upstream. 

OPA agreed that it would be necessary to devise a plan to restrict 
eligibility for accounts to the larger retailers, but could not agree 
that all retailers should or could be eliminated. Many supermarkets 
and chain retailers handle far more volume than some wholesalers. 
Furthermore, OPA felt that the redemption clerk idea would be ad¬ 
ministratively impossible to handle, that the redemption clerk would 
not be able to be in the proper places at the proper times, and that 
retailers would be severely handicapped by not having the proper 
denominations of coupon vouchers when a delivery truck arrived. It 
seemed much less complicated to have the redemption clerk’s func¬ 
tions handled by the banks. The idea, therefore, was rejected. 

On September 15, a second alternative was proposed by the same 
source. The redemption clerk had been discarded but accounts were 
still to be limited to the wholesale level and above, although this was 
not basic to the proposal. OPA was to establish one or a few central 
stamp accounting agencies. When the stamps were ready to be 
deposited by the wholesaler, he was to mail them to this accounting 
agency in a box supplied by OPA, the box to be mailed back to him for 
reuse. 

At the same time, he was to fill out a multipart form listing what 
he had forwarded to OPA. Two parts of this form were deposited 
with the bank, where one was retained as the credit ticket and the 

6 Letter, W. L. Hemingway, President, American Bankers Association, to Leon Hender¬ 
son, Administrator, OPA, September 30, 1942. 



31 


The Study of Ration Banking 

other stamped by the bank and forwarded to the accounting agency 
where it would be compared with the actual shipment. If there 
any errors, correction could be made by advice to the bank and an 
adjusting entry there. 

This proposal was particularly interesting in view of the later 
establishment by OP A of the verification centers, which undertook 
§ome (though by no means all) of the proposed central accounting 
agency’s functions. It was rejected at the time because of a combina¬ 
tion of circumstances. First, the establishment of the central account¬ 
ing agencies, in addition to the time involved, would have necessitated 
procurement of considerable amounts of space, equipment and per¬ 
sonnel. Since OPA was a temporary agency, it appeared wise to 
make use of existing facilities rather than to create new ones, unless 
it was demonstrated to be actually necessary. 

Secondly, there appeared to be a considerable advantage of sim¬ 
plicity in the OPA proposal, in that it provided for a procedure very 
similar to normal business practices. Ration currency was to be de¬ 
posited just as dollar currency was; businessmen could familiarize 
themselves rapidly and easily with such a system. 

Finally, the OPA plan was already at press in preparation for the 
experiment, for which all arrangements had been completed. To 
change would have meant a delay of a number of weeks at best, and 
the rationing of canned foods and meats was being held up until the 
ration banking plan was installed. OPA would have been reluctant 
to hold up its program, which it felt would work satisfactorily, even 
if the alternative had appeared to be a better plan. 



CHAPTER IV 


The Experiment in Ration Banking 

The memorandum from the Deputy Administrator in charge of 
Rationing (June 15, 1942) establishing the ration banking committee 
had instructed the committee, if it proved desirable, to “develop experi¬ 
mental plans to be instituted in one or more cities presenting ideal 
circumstances.” On August 9,1942, the committee addressed a memo¬ 
randum to the Deputy Administrator recommending that a test be 
undertaken and requesting authority to proceed with the arrange¬ 
ments. 1 

It was felt that an experiment would serve three purposes. In the 
first place, while there was general agreement that the idea was basically 
sound, it seemed wise to put it to an actual test under controlled condi¬ 
tions so that adjustments could be made before the Nation-wide installa¬ 
tion took place. This would assure a smoother installation. 

In the second place, OPA had no legal authority to compel any bank 
to participate in the program. Except for patriotic persuasion, the 
participation of every bank would be completely voluntary, and it was 
essential that fairly complete geographical coverage be obtained when 
the national plan was launched. Bank relations, therefore, were con¬ 
siderably more important in this than were industry relations in other 
rationing programs. An appeal to the Nation’s banks could be made 
more soundly if OPA could show that the program had actually worked 
when tried. In addition, it was anticipated (correctly) that many 
bankers would visit the scene of the test and that banking publications 
would follow its course carefully; the resultant publicity would be 
quite valuable when the general appeal was made. 

Finally, it had been impossible for OPA to obtain even an approx¬ 
imation of what ration banking might cost. The experiment would 
offer an opportunity for an actual cost study of the program while in 
operation so that when the reimbursement schedule was announced at 
a later date, it would be something more than a guess. Since the 
reimbursement schedule was naturally considered by the banks to be 


1 Memorandum, The Committee on Ration Banking to Paul M. O’Leary, “The Proposed 
Ration Banking Plan,” August 9, 1942. 


33. 




34 A History of Ration Banking 

one of the most important parts of the contract, this fact was rather 
important. 

Selection of the Test Area* 

After considerable study OPA decided that the qualifications neces¬ 
sary for a representative test were found in several counties in New 
York State, including the cities of Albany, Troy, and Schenectady and 
the immediately surrounding territory. In addition to the fact that 
the area was accessible to Washington, was easy to supervise, had an 
OPA district office, and was in the gasoline rationed area, it contained 
other conditions that appeared to make it a wise selection. 

A problem was bound to arise if many transactions took place be¬ 
tween merchants inside the test area and those outside. The selected 
area seemed to minimize this problem, since it was largely self-con¬ 
tained, being 145 miles from New York City, 78 miles from Utica and 
70 miles from Springfield, Mass., the nearest sizeable trading areas. 

Within the area were to be found about a half million people, in¬ 
cluding a number of foreign groups, living in 3 large cities, a number 
of small towns and some areas that were genuinely rural. These 
people were served by approximately 2,200 retail grocery outlets, 30 
wholesalers of sugar and perhaps 50 licensed and intermediate distrib¬ 
utors of gasoline. (Sugar and gasoline were the only 2 commodities 
under coupon rationing at the time.) 

The area contained 18 head banking offices and 15 branch offices. 
The most extensive system had four branches. The largest bank had 
total resources of $150,000,000, the smallest less than a million. The 
city of Albany had a local clearing house while the other two cities 
did not. The number of grocery stores per banking office was 71, 
which was somewhat higher than the ratio for the United States, but 
this was considered an advantage rather than the reverse. All in all, 
the area seemed better suited as a proving ground than any other 
that could be found. 

The Trade Education Program 

The tentative date set for the beginning of the program was 
October 26, 1942 (this date was met) and the first of the OPA group 
arrived in Albany on September 15 to open the office. This group 
made arrangements for space with schools, chambers of commerce 
and other trade groups for holding trade meetings. Mailing lists were 
obtained and meetings organized at which the merchants were in¬ 
structed in the new program. These meetings were featured J^y the 
showing of a sound slide film, especially prepared for the purpose. 

Extensive use was made of wholesalers to carry literature and 


35 


The Experiment in Ration Ranking 
instruction to retailers. Because tlie wholesalers had most to o-ain 

CJ’ 

from the program (it would simplify rationing considerably for 
them), they were extremely cooperative and later surveys showed that 
the wholesalers' efforts had been the most effective single method of 
disseminating information to retailers. Direct mailings were also 
made to all merchants in the area, principal reliance being placed 
on a small question-and-answer flier. 

The total OPA staff in Albany never numbered more than ten, but 
because of a rather considerable trade and press interest in the fact 
that the locality was being used as a “guinea pig” for the whole Nation, 
(he trade education was generally quite successful. The program for 
educating the trade prior to the institution of Nation-wide ration 
banking was patterned after the New York experience, but it was much 
less intensive in coverage. 

The Bank Education Program 

OPA had decided that it would be advantageous to have the banks 
take part in the test without remuneration. The bank education 
program, therefore, had two parts, the first to persuade the local bank¬ 
ers to take part at all, the second to teach them what they were to do. 

The first of these two problems was handled by direct approach 
(on September 23) to all the 18 presidents of the local banks. In 
this, valuable help was rendered by the New York State Bankers 
Association, the Chief National Bank Examiner of the Second Federal 
Reserve District and the New York State Superintendent of Banks. 
In a series of meetings, held on September 23, the local bankers 
expressed a willingness to take part in the program. 2 

OPA then turned to the problem of instructing the operating 
personnel of the banks in their functions and responsibilities under 
the program. This was done by a series of meetings during which at 
least one operating official of every bank in the area was intensively 
instructed in the ration banking operation and given written mate¬ 
rial for further study and for assisting him in instructing his tellers, 
bookkeepers, proof clerks and other affected employees. In this edu¬ 
cational effort, considerable assistance was rendered by the sub¬ 
committee of bankers appointed by the American Bankers Association 
to study the experiment and assist OPA. The committee had six 
members, three from local banks, and three from outside. 

As with the trade, the bank education program for the experiment 
was far more intensive than later proved to be feasible for the 15,000 
banks of the Nation. In this sense the test was not truly representative. 

2 Memorandum, Joseph A. Kershaw to Louis J. Kroeger, “Conferences with Bankers in 
Albany, September 23 to 28, 1942,” undated. 



36 


A His tory of Ration Banking 

It was felt, however, that other banks would have the benefit of the 
publicity from the test, whereas the entire idea was completely new 
to the bankers in the test area. 

The Ration Banking Plan as Installed in New York State 

(a) The nondepositor .—The ration banking program did not in¬ 
clude every merchant in the gasoline and sugar rationing systems. 
Those who did not open accounts were not affected at all by the experi¬ 
ment. If retailers, they continued to collect coupons from consumers, 
paste them on the gummed sheets and transfer them to suppliers 
when making a purchase. All gasoline dealers (retailers) were in 
this group since they, were not permitted to open accounts. Institu¬ 
tional and industrial users of sugar were permitted but not required to 
open accounts, and most of them elected not to do so. 

(h) The depositor .—All retailers and wholesalers of sugar, all inter¬ 
mediate and licensed distributors of gasoline, and those institutional 
and industrial users of sugar who wished to, opened accounts . 3 This 
was done by filling out, in duplicate, a signature card which was also 
an application for an account. This was left with the bank, with or 
without an initial deposit, and the account was considered opened. 
If the depositor had a dollar bank account he was required to open 
his ration account in the same bank. This was done so that the 
burden on the banks would be most equitably distributed and to avoid 
upsetting competitive relationships among banks. 

After opening an account the merchant was not permitted to trans¬ 
fer ration currency directly to a supplier; all transactions had to be 
by ration check. A deposit was made by listing and totaling the 
items on a deposit slip, made out in duplicate, and by presenting the 
items and deposit slips to the bank. The duplicate was stamped 
and initialed by the bank and returned to the depositor for his 
permanent record. 

Having established a credit in his account, the depositor could write 
a ration check or checks up to the value of his credit balance whenever 
making a purchase. The ration check closely resembled an ordinary 
check, except that it was made out for so many pounds of sugar or 
gallons of gasoline. It was also nontransferrable, so that it had to 
be deposited by the payee after endorsement. This nontransferrability 
was presumed to be necessary for OPA’s enforcement purposes so 
that any check could be traced easily. No problem was created by 
this feature since it was very unusual for a nondepositor to receive 
a check. On the infrequent occasions when this occurred—for ex¬ 
ample, a refund by a wholesaler to a nondepositor institutional user— 


3 Amendment 20 to Ration Order 3, October 26, 1942. 7 F. R. 8710. Amendment 14 to 
Ration Order 5A, October 26, 1942. 7 F. R. 8708. 



37 


The Experiment in Ration Banking ' 

the nondepositor took the check to a local board, endorsed it and 
received a certificate for it. The board then sent it directly to the 
drawee bank. 

Finally, the ration check was valid only for 15 days after its date 
of issuance. If a check was kept beyond that length of time it had 
to be returned for a new one, to the drawer. This provision, which 
quickly proved to be impractical, reflected the general feeling in the 
early days of rationing that ration currency should be valid for a brief 
period only, and represented also an effort to keep the check “float” 
at as low a figure as possible. 

The “in-and-out” problem was never serious during the test since 
not many such transactions took place. When a supplier inside the 
area sold outside he merely deposited the currency lie collected. When 
a buyer inside with a ration bank account bought from outside, he 
wrote a check for the proper amount, exchanged it at the local board 
for a certificate which he forwarded to the supplier. This was neces¬ 
sary because the ration check was not valid outside the experimental 
area. 

Checks under discussion to this point were not required or permitted 
to be certified. In two instances, however, certified checks were used. 
Whenever a merchant owed ration currency to OPA (for an inventory 
adjustment or similar reason) he wrote a check in the proper amount 
payable to OPA and had it certified by his bank before surrendering 
it to OPA. The debit was made immediately by the bank and the 
check retained permanently by the OPA office as part of the merchant’s 
record. 

The second case was that of the licensed distributor in gasoline. 
Each month a report to OPA was made by each licensed distributor 
showing the number of gallons of gasoline sold in the civilian market 
in the previous month. Accompanying this report was a certified 
ration check for the proper amount. Again the check was retained 
as a part of the permanent record. Sugar refiners would have oper¬ 
ated similarly had there been any in the area. 

The requirements and options outlined above for the depositors were 
incorporated in amendments to the sugar and gasoline rationing regu¬ 
lations, restricted to the trial area, of course, so that they had the 
force of law. Because of the willingness of the trade to conform, and 
because of the experimental nature of the project, little effort was 
made to enforce the requirements. Aside from a tendency toward 
lateness in opening accounts on the part of some, there was excellent 
compliance from the trade. 

( c ) The hanks .—It has already been pointed out that the banks of 
the area took part without remuneration. For two reasons OPA was 
anxious for this situation to prevail. In the first place, there was not 


38 


A History of Ration Banking 

the slightest idea of what a proper schedule of reimbursement should 
be. In the second place, a financial arrangement would have required 
a contract stipulating what was to be done by the banks in return for 
the reimbursement paid. OPA was anxious to avoid this, since it was 
necessary for the arrangement to be completely flexible so that indi¬ 
cated changes could be made rapidly and without regard to possible 
effects on a contract. 

As a result, there was no formal arrangement whatever between 
OPA and the 18 banks. In effect, the banks concluded a gentlemen’s 
agreement with OPA to do whatever OPA decided they should do. 
The plan was carefully outlined to them at the outset, of course, but 
neither they nor OPA knew then what changes might be called for. 
From time to time during the course of the test, OPA sent typewritten 
memoranda to the banks altering instructions; occasionally this was 
done by telephone. Those instructions were always very informal and 
they were always followed. It is probable that this type of relation¬ 
ship between a Government agency and a group of private corpora¬ 
tions was unique. The important thing was that it worked, and that 
it permitted the trial run to be an experiment in the truest sense of 
the word. 

The banks received in deposits sugar stamps and gasoline coupons 
attached to gummed sheets, sugar and gasoline certificates, and ration 
checks for the two programs. Most of the banks received ration 
deposits at any teller’s window although a few labeled one or a few 
windows as the ration depositories. The deposits were accepted “sub¬ 
ject to count,” except for very small deposits, and the duplicate deposit 
slip stamped and initialed and returned to the customer without delay. 

The items and the deposit slip were proved in the bank, by a book¬ 
keeper in the smaller banks, by a proof clerk in the larger institutions. 
This process consisted of verifying the items themselves for value and 
validity, and checking the listing and addition on the deposit ticket. 
This was the most difficult and time-consuming of all the ration bank¬ 
ing tasks; there were several different kinds of stamps and coupons 
with different values, and every item, even the checks, had to be checked 
to make sure it had not expired. In addition, checks and certificates 
had to be properly endorsed to be valid. 

The proof of the certificates, with their endorsements and expira¬ 
tion dates, proved particularly tedious. One of the early reports 
from the OPA office in Albany contains this statement: “On a deposit 
of about 8,000 pounds of sugar in one of the banks, the clerk was able 
to count sugar stamp cards [gummed sheets] totaling 2,500 pounds 
in about two minutes, and it required an hour to analyze and verify 135 
or so certificates totaling 1,500 pounds.” 4 


4 “Progress Report on Ration Banking from October 28 to November 8, 1942.” Undated. 
The additional 4,000 pounds in the deposit are presumably accounted for by ration checks. 



39 


The Experiment in Ration Banking 

After the deposit had been proved (the depositor was notified if an 
error was detected), the deposit ticket was sent to the bookkeeper 
for the posting of the credit. No special ledger sheets were used for 
this purpose, and no special machines. Each bank used its regular 
posting process, merely labeling the ledger sheet “sugar” or “gaso¬ 
line”. The regular procedure for rendering statements was also fol¬ 
lowed. 

The stamps, coupons, and certificates were stored in a safe place 
pending disposition, to be described presently. Any checks written 
on the bank of deposit (house checks) were debited against the drawer, 
cancelled and filed until the statement period arrived. Checks on other 
banks were cleared to the drawee banks. 

The method of clearing checks was the least satisfactory part of 
the experimental program. It has already been pointed out that in 
OPA there was insufficient appreciation of the problem of clearing 
checks when the plan was being studied. The clearance procedure, in 
fact, was not evolved until just a few days before the experiment was 
launched, and it was realized fully that it was a makeshift device 
only. 

The checks were actually cleared either by direct sending between 
banks, or through the local clearing house in Albany. There was also 
some use of correspondent banks. There were no accounts maintained 
by each bank for the others, no receipting device, and of course no 
interbank balances. The only control used was that provided by the 
use of pre-serially numbered checks by the depositors. 

Each check book issued contained checks prenumbered from 1 to 50. 
They were so arranged that they had to be used in sequence, and the 
depositor was instructed to notify his bank if any checks were lost, 
spoiled or not used after issuance. The banks were under instruction 
to watch the serial numbers as the checks were presented for payment 
and filed. If a number was missing after a reasonable period of time 
the bank was to ascertain from the depositor what might have hap¬ 
pened to the missing voucher. 

If no adequate explanation could be offered the check was traced, 
with the help of OPA if necessary, and appropriate adjusting entries 
made. In any event, the depositor filled out what was called a “miss¬ 
ing voucher statement” which was filed by the bank in place of the 
check. 

Because of the small number of banks involved, because debit ac¬ 
tivity in both sugar and gasoline was light, and because the 15-day 
time limit on checks kept the float down, the serial number control 
worked satisfactorily during the test. For many reasons, however, it 
would have been too cumbersome for use on a national scale. The 
clearance problem was given a good deal of thought before the solu- 


4 q A History of Ration Banking 

tion for the national program was found, a solution, incidentally, far 
different from that just described. It will be discussed in the next 
chapter. 

Upon the receipt of checks through clearance or in deposit, the 
drawee bank entered the debits and canceled and filed the checks in 
the customary manner. Both credits and debits, of course, were car¬ 
ried in terms of gallons and pounds, but most of the banks did not 
even remove the dollar sign from their posting machines. Actually, 
the bookkeepers scarcely knew that ration banking existed since their 
rationing work was so similar to their regular work—no banks in the 
New York area had enough rationing activity to use the time of a 
bookkeeper or a posting machine exclusively on that work. 

There was, however, one outstanding difference that assumed very 
great importance in the program at a later date. Whenever a check 
was received by a drawee bank for an amount greater than the balance 
on the ledger, the bank was instructed to enter the debit notwithstand¬ 
ing the fact that this entry would create a red or negative balance. 
The bank was then to inform OPA that an overdraft had been created 
in the account. Subsequent debits and credits were also to be entered 
until or unless OPA gave specific instructions to the contrary with 
respect to that particular account. 

There were three reasons for this highly significant provision. In 
the first place, the banks had initially expressed a desire to avoid a 
provision requiring the return of u n. g.” checks because they feared 
it might lead to suits against them because of errors. They w 7 ere an¬ 
ticipating a deterioration in their labor situation as the war progressed, 
and expected that this would result in their making more and more 
errors. When a check is returned erroneouslv for insufficient funds, 
there is always the possibility that the bank may be sued by the 
drawer for defamation of credit. 

Secondly, OPA felt that an overdraft would be a rather serious 
matter, since it would mean that a merchant had received more than 
his share of a scarce commodity. If the check was returned through 
the banks to the payee, the entire matter might be settled without 
OPA's knowledge, though certainly not without having disturbed the 
distributive system. OPA was unwilling to have this take place. 

Thirdly, if the supplier was required to assume responsibility for 
the validity of checks offered to him, he would be reluctant to sell in 
many cases without payment sufficiently in advance to assure him that 
the check would not be returned. But under rationing no supplier 
could know a week in advance what delivery he would be able to make. 
Had it been necessary for the supplier to assume this responsibility 
for checks received, distribution would have been slowed or impaired. 

During the experiment only one or two accounts were overdrawn, 


41 


The Experiment in Ration Banking 

and these were the result of an oversight on the part of the depositor. 
The overdraft problem, however, developed later into the most serious 
problem of the program. It will be analyzed more fully in a later 
chapter. 

The description of the bank operation in the test period has omitted 
two functions, closely tied together. The entire internal operation 
was controlled by what came to be called the “proof sheet.' 5 Devised 
by several of the bankers in the New York area, it was used most 
successfully there and adopted almost without change in the national 
program. The proof sheet was also the source of information for 
the periodic bank report to OPA and was devised with the idea in 
mind of simplifying the compilation of the report. 

The proof sheet was the general ledger of ration banking. It con¬ 
trolled all other entries made in every part of the flow of ration cur¬ 
rency into and out of the bank. Deposits were posted in bulk as 
credits, whereas the offsetting debit entries were the various items 
making up the deposit. The debit side of the proof sheet was a sort 
of spread sheet on which the different kinds of stamps, coupons, and 
certificates were listed. 

The report, made semimonthly during the experiment, was merely 
a total of each of the columns on the debit side of the proof sheet since 
the last report. This told OPA exactly how many sugar stamps had 
been deposited, and so on. These statistics were fundamental to the 
administration of the rationing programs, since they were the only 
indication of the rate of consumer expenditure of ration currency. 
Since the figures could be so easily drawn off the proof sheets (there 
had to be a proof sheet for each program), the compilation never 
became any considerable burden for a bank that maintained proper 
controls. 

The items received by a bank were stamps, coupons, certificates 
and checks. The checks, of course, were cleared and cancelled and 
eventually returned to the drawer with his statement. The certificates 
were listed on an adding machine tape and forwarded periodically 
to the OPA office. The plan was to check them there for raises or 
alterations and to return a few to the issuing local board for com¬ 
parison with the board 5 s file copy as a spot check. This never proved 
feasible, since the workload was too great and the board filing systems 
were not adequate. 

The stamps and coupons were to be retained by the bank in a secure 
place, preferably the vault, and then completely destroyed, usually 
by fire, under responsible supervision. Destruction was to take place 
weekly. To many banks, of course, currency destruction was not a 
new process, since most of the larger ones have bonds or other securi¬ 
ties to destroy from time to time. The procedure immediately became 

741926—47-4 



42 A History of Ration Banking 

a problem to some of the smaller banks, however, particularly those 
with oil furnaces. 

This situation foreshadowed an annoying problem that developed 
later and persisted until the destruction procedure was eliminated. 
Some banks pooled their currency and took turns sending an officer 
with a truck to supervise the destruction. A few of the very large 
banks were able to interest shredding companies to cart it away and 
have it chewed and digested by cutters, beaters, and acid baths. But 
for*most of the banks one unsatisfactory method or another was de¬ 
vised, usually burning in a furnace. Since the gummed sheets burned 
very slowly in an ordinary fire, it was tedious and time consuming for 
the supervising officer. 

Cost 

It will be recalled that one of the purposes of conducting the experi¬ 
ment was to determine what the cost of the project would be and what 
form a reimbursement schedule should take. Originally, it had been 
hoped that each bank might be able to keep records on the cost of 
operating the program and that no other survey would be required. 
This proved impossible, however, because of the many divergent ideas 
of cost accounting in banks. 

It was eventually decided to hire a firm of bank accountants to make 
studies of the program in operation, and to recommend the basis for 
reimbursing the banks, as well as the amount. For several weeks 
several accountants worked in 15 of the banks accumulating data 
and preparing recommendations. As a matter of incidental interest, 
OP A was careful to select a firm of accountants which enjoyed an 
excellent reputation for fairness and accuracy among the banks; it 
was felt that this fact would be important when the schedule was 
later presented to the banks. 

t*. 

Quantitative Description of the Experiment 5 

Ration accounts were opened in the area’s 18 commercial banks and 
15 branches beginning October 26, 1942. At the end of 6 weeks (gen¬ 
erally considered the duration of the experiment, though ration bank¬ 
ing was never suspended in the area) 38 gasoline accounts had been 
opened. Three hundred eighteen deposits had been made in these 
accounts containing 54,381 items. (An item is defined as a check, a 
certificate or a gummed sheet containing one or more coupons.) 

The smaller number of accounts in gasoline resulted from the exclu¬ 
sion of retailers from the program. It is significant to note, however, 
the very large size of each deposit on the average. This situation con- 

5 The figures used in this section were obtained from the banks, tabulated and photostated. 
The tabulation is entitled “Summary of Daily Reports of Operations—Weekly Totals 
from October 28, 1942.” 



43 


T he Experiment in Ration Banking 

tinued to characterize the gasoline program and frequently made for 
difficulty since the bank burden was not well distributed. For exam¬ 
ple, one of the small banks in Schenectady had the account of the larg¬ 
est gasoline distributor in the area. It was necessary for the two to 
make an arrangement whereby the deposit was made at an appointed 
hour each week (after banking hours) by truck at a rear entrance. The 
proof of this deposit required several days in the bank. 

In sugar there were more and smaller accounts. Six weeks after 
opening date, 1,559 accounts were on the banks’ books, 3,191 deposits 
had been made containing 22,181 items. Two thousand seven hundred 
and seven ration checks had been written during the period. Deposits 
in the amount of 5,279,189 pounds had been made and withdrawals had 
amounted to 3,518,969 pounds, the difference being the balance on the 
ledger sheets of all the depositors. 

These figures indicated that the bank problem in the future would 
center generally on the deposit proof function. This was the largest 
and most difficult task. The activity figures on posting and check 
clearings demonstrated pretty clearly that these functions could be 
handled in stride by most banks. Later experience bore out this 
diagnosis. 

Results of the Experiment 

With the exception of the check clearance problem, OPA came to 
the early conclusion that the plan was basically sound. After the first 
2 or 3 weeks of operation emphasis shifted from the question of whether 
the proglam could be installed nationally to how soon this could be 
done. This was rather important in view of the fact that OPA was 
under great pressure to get a canned foods and a meat and fats ration¬ 
ing program launched; neither could be operated without the ration 
banking plan or some substitute for it. 

One of the most profitable lessons learned from the experiment was 
that the trade was not following the regulations as carefully as had 
been assumed. For example, the endorsement requirements on cer¬ 
tificates were very generally ignored, and this made the bank’s job 
more difficult since the return of invalid items and adjustment of the 
deposit ticket were expensive to the bank and interrupted the routine. 6 
Again, many merchants were ignoring the consecutive numbering on 
the gummed sheets and affixing their stamps haphazardly, thus de¬ 
stroying the self-counting feature of the sheets. These and similar 

8 This situation led to the elimination of the use of certificates for home canning use in 
the sugar program and the substitution of fixed value coupons for them. Another discovery 
made, during the experiment, was that duplicate certificates were sometimes being used 
to buy sugar. As a result OPA stopped issuing sugar certificates in duplicate. Originally, 
the duplicate had been intended to be retained by the recipient as a record. 



44 A History of Ration Banking 

practices pointed to the need for a more intensive trade education 
program. 

Several changes in the banking of plan per se were made as a result 
of the experiment. Some of them were quite minor, such as reducing 
the size of the check, rearranging the lay-out of the signature card, 
and widening the columns on the deposit ticket. It was very helpful, 
however, to discover such things and make appropriate changes be¬ 
fore rather than after the Nation-wide installation. 

One of the most important changes made was the elimination of the 
expiration dates on the ration checks. This feature had been un¬ 
wieldy for the banks and, on further study, appeared to serve no useful 
purpose. 

In general the experiment was most successful. Considerable pub¬ 
licity, particularly in banking publications, had been received and 
many visitors had observed the program. As a result, there was much 
greater familiarity with the entire idea than would otherwise have 
been possible. OPA was able to move toward the installation of the 
program nationally with confidence in its success. 

Four major problems remained. First, a satisfactory method for 
clearing checks had to be evolved. Second, a determination had to 
be made as to which retailers in food would be permitted to open ac¬ 
counts. Third, a reimbursement schedule had to be devised. And 
fourth, a contractual arrangement of some sort had to be worked 
out. Subsequent chapters will consider these problems at some length. 


CHAPTER V 


The Installation of Kation Banking 

Separate treatment in later chapters will be afforded two of the 
four problems enumerated at the conclusion of the last chapter. The 
method of clearing checks and the determination of trade eligibility 
for food ration banking may be considered at this point. 

Settling the Check Clearance Problem 

It has been noted previously that there was an early realization that 
the check clearance procedure adopted for the New York experiment 
would not be satisfactory for the national program. As soon as the 
experiment had been fairly launched, work began to go forward on 
this problem. Because of the important part in any procedure to be 
played by the Federal Reserve System, the OPA planning was carried 
on in close cooperation with officials of the System. 

It was decided at an early date that both member and nonmember 
banks would clear all except “local” checks through the Federal 
Reserve banks and branches. Local ration checks would be handled 
by clearing houses, where they existed, and where there was no clearing 
house or other local clearing facility, through the Federal Reserve 
bank. Although large banks customarily handle a large number of 
dollar transit items for their correspondent banks, it was decided not 
to permit this practice with ration checks, principally as a protection 
for the large banks. In the absence of such an express prohibition, 
the small banks would have expected this service from their city 
correspondents, which would probably have had to supply it. Banks 
were permitted, however, to send checks drawn on their correspondents 
directly to those correspondents. 1 

The basis of the clearing arrangement was a receipting device. 
The sending bank listed the debit items on a transmittal letter in 
duplicate, and the letter accompanied the items. At the bottom of 
the letter, separated by perforation, was a receipt, containing only 
the sending bank’s name and the total number of units enclosed. The 

1 Manual of Operating Procedure, OPA, 1943, p. 7. This provision was inserted at the 
request of the Committee on Collections of the Federal Reserve System. 


45 




46 


A History of Ration Banking 

paying bank (or the Federal Reserve bank) verified the items to the 
listing and to the total, stamped the receipt, and returned it to the 
sending bank. The latter, which retained the duplicate in an open 
file until the receipt was returned, thereupon attached the original 
receipt to the duplicate letter, as evidence of completion of the trans¬ 
action, and closed the file. If the receipt was not returned within a 
reasonable period of time, a tracer would have to be sent out. 

Ration checks were listed on transmittal letters merely in units, with 
no regard to particular program. In other words, totals in terms of 
gallons, pounds, pairs and points were added together. Thus the 
Federal Reserve banks never had occasion to differentiate a meat check 
from a gasoline check; they proved items received against items sent 
in any given day merely in total units. 

In the event a transmittal letter and checks or a single check, were 
lost in clearance, one of a number of tracing methods would be fol¬ 
lowed. Where the loss took place between a Federal Reserve bank 
and the drawee bank, it was very simple to trace if the Reserve banks 
photographed all ration checks, which a number of them. did. In such 
cases the film indicated the amount of the check and the drawer, and 
the proper debit entry would be made by the drawee bank, supported 
by a debit ticket supplied by OPA. 

Where items were not photographed the process was more laborious. 
Each Reserve bank, usually by a system of cross-numbering, was in a 
position to determine the banks that had sent the lost items. The 
sending banks were then notified of the amounts of the lost items, of 
the date of receipt and of the drawee bank. They then had to identify 
the item or items through deposit tickets. 

If the letter was lost between the sending bank and the Federal 
Reserve bank, the sending bank knew that every out-of-town item 
deposited that day was lost. The final aspect of the tracing process 
was to ask the depositor to identify the person who gave him the 
particular check and this identified the drawer. 

Tracing lost checks sounds more difficult than it actually is. 
Through labelled adding-machine tapes and other proof methods, it 
was usually fairly simple to locate a lost item and have the proper 
debit entered. As an aid in the process, OPA required that check 
transit numbers be listed on deposit tickets beside each check by the 
depositor. This made missing items readily identifiable when the 
drawee bank was known, which was of course always the case when 
the letter was lost between the Reserve bank and the drawee bank. It 
should also be remembered that losses occurred very rarely. 

The proposed clearance method was formally approved by the Board 
of Governors on December 10, 1942. 2 The System’s Committee on 


2 Letter, Marriner Eccles to Leon Henderson, December 16, 1942. 



47 


The Installation of Ration Banking 

Collections had studied the procedure with OP A representatives and 
suggested a few very minor changes which had been accepted. In the 
exchange of letters between the chairman and the Price Administrator, 
OPA agreed to reimburse the Reserve Banks for their actual costs, 
which were to be billed periodically with supporting data to demon¬ 
strate what costs had been incurred. No other contract existed, and 
OPA paid approximately $75,000 per month during the period of full 
operations to the 12 Reserve banks and the 24 branches. Payment 
was made monthly after submission of a claim showing man-hours 
worked, machinery rental and other direct costs. 

The clearance method operated most satisfactorily throughout the 
program. There was some difficulty in a few cases when a receiving 
bank was dilatory in returning receipts, and one bank was required 
to withdraw because of persistent refusal to return receipts promptly. 
On the whole, however, the system worked very successfully. It may 
be pointed out that at the height of the program, the New York City 
Federal Reserve Bank was handling 40,000 ration checks per day; 
officials of the bank had no suggestions to offer for improving the 
clearance system. 

Trade Eligibilty for Ration Banking 

The problem of which retailers should be permitted or required to 
have ration bank accounts had to be decided before the program could 
be started. The determination was made at an early date that no 
gasoline retailers would be permitted to open accounts, and that all 
distributors (wholesale) and refiners would be required to operate 
exclusively through ration banking. 3 

The eligibility problem, therefore, was essentially one of food— 
sugar, and coffee which was rationed in November 1942, as well as the 
food point programs then being planned. Generally speaking, OPA 
felt that its purposes would be served best by including retailers who 
accounted for a substantial portion of the retail trade in ration bank¬ 
ing. The advantage to OPA was that for any retailer with a bank 
account there would be a record on his bank ledger of all his rationing 
transactions, which would facilitate enforcement. 

The banks, on the other hand, were anxious to keep the number of 
accounts at a minimum. Their committee was worried primarily 
about the labor shortage in the banks; the} 7 did not want any more 
people crowding into lobbies and taking the time of tellers than 
necessary. 

It was agreed that a single criterion should be adopted to determine 
ration banking eligibility for all food programs. It could only be 
confusing to retailers if they were required to have a coffee account but 


3 See ch. Ill, p. 27. 


* 



48 


A History of Ration Banking 

not permitted to have a sugar account. Accordingly, the dollar vol¬ 
ume of business was selected as the criterion. On the basis of avail¬ 
able statistics, it appeared that food retailers whose gross monthly 
volume of business was in excess of $5,000 accounted for about 75 per¬ 
cent of the food business at retail and included about 25 percent of the 
retailers. This was decided upon as the proper “cut-off” level. The 
larger retailers and all wholesalers were required to open ration 
account. 4 

The sugar and coffee rationing regulations were amended, effective 
January 27, 1942, to incorporate these requirements. The sugar 
amendment read as follows: 5 

' Each owner of a registering unit which includes or is composed of one or more 
wholesale establishments, more than one retail establishment, or a single retail 
establishment whose gross sales of all meats, groceries, fruits, vegetables, and 
similar products, were $5,000 or more during December 1942 shall open at least one 

account for all the component establishments of such registering unit. 

• 

It will be noted that this language ignored the small retailer. By it, 
he was given the option of opening an account if he wished. The as¬ 
sumption at the time was that very few would elect to exercise this 
option, though the bankers’ committee was skeptical of this assump¬ 
tion. Later experience substantiated that skepticism. 

The Manual of Operating Procedure 

The basic document used by the banks was the “Manual of Operating 
Procedure,” written in November 1942 and issued in January 1943. 
Work was begun on it as soon as it had become apparent that the New 
York State experiment would prove to be a success. The drafting of 
the manual was done in about 8 days and in every sense was the joint 
product of the Government and the banking fraternity. 

The manual was divided into six parts: Instructions to the bank on 
how to open an account; the acceptance and proof of deposits; the 
clearance of checks; internal control procedures; and miscellaneous 
material. The manual contained only material that was common to 
all rationing programs and was supplemented from time to time with 
specific program memoranda. 

Bank Forms 

With the exception of two or three reporting forms, OPA dis¬ 
tributed no forms in connection with the ration banking program. 
The transmittal letter, the deposit slip and the ration check, carrying 
the individual bank name, were ordered through regular bank sta¬ 
tionery channels by each bank. In most instances banks used their 
regular commercial ledger sheets for ration banking ledgers, and the 
proof sheet was ordinarily a ruled pad. 

4 Every multiunit retailer, regardless of size, also bad to have at least 1 account for all 
bis outlets. 

5 Amendment 38 to Ration Order 3, January 27, 1943. 8 F. R. 1288. 



49 


The Installation of Ration Banking 

The specifications for the check and transmittal letter were devised 
after careful discussions with lithographers and the Federal Reserve 
System. The check was never changed from the original design. 
The transmittal letter was reduced in size during the stringent paper 
shortage 6 so that for a time two sizes of transmittal letters were in use. 

The uniformity of all checks in design and size, and of transmittal 
letters with the exception noted above, made the job of clearing checks 
in the Federal Reserve banks considerably simpler than it would have 
been if ration checks had been a number of different designs and sizes. 
At the request of the Board of Governors of the Federal Reserve 
System, the bank transit number and the Federal Reserve routing sym¬ 
bol were on all checks, always in the same spot. Several requests were 
made of OPA from time to time to permit deviations from the speci¬ 
fications, but these were always refused. It is probable that this uni¬ 
formity of ration checks gave some assistance to the movement for 
the standardization of dollar checks that has been afoot for some 
time. 

Bank Education 

The task of preparing the banks for ration banking was a formidable 
one, particularly in the brief period of time available. Most of the 
Nation’s 15,000 commercial banks are very small, and all were very 
busy during the war. Principal reliance had necessarily to be placed 
on the manual which, if studied, would prepare a bank adequately for 
the program. 

OPA’s field staff was unable to make any substantial contribution. 
Only eight men, one in each of OPA’s regional offices, were techni¬ 
cally acquainted with the program, and they were hired only in De¬ 
cember. They were unable to cover much territory, and none of the 
dozen people on the national office ration banking staff was available 
for extended travel. 

The American Bankers Association did excellent educational work, 
primarily through the State associations, and many banks were 
reached in this way in group meetings of one sort or another. By and 
large, lioivever, the bank education was spotty; only a small portion 
of banks l^ad anything more than the manual and perhaps a State 
association bulletin on the subject. In spite of this, the banks ap¬ 
peared generally to understand what was expected of them by the 
program, undoubtedly in large part because of its close similarity to 
commercial banking. 7 


6 Bank Manual Memorandum, May 6, 1944. 

7 The real failure in the initial education program as well as that which continued was 
in impressing the banks with the importance of following instructions. Many of them 
failed to do perfectly simple things, not because they could not understand, but because 
they did not appreciate the importance of the program. 



50 


A History of Ration Ranking 


Trade Education 

For two reasons the task of educating the gasoline and food indus¬ 
tries in ration banking was simpler than in most other rationing pro¬ 
grams. In the first place only the wholesalers, processors and larger 
retailers were affected so that it was unnecessary to carry the story to 
the country store or the cross-roads gasoline station. Not only did 
this reduce the number to be reached, but it concentrated the problem 
with those merchants easiest to train. 

Secondly, ration banking was a helpful device for industry and 
popular with it. Trade associations, therefore, were willing to do even 
more than usual in carrying a new rationing regulation to their mem¬ 
bership. And because most affected merchants were accustomed to 
regular banking procedures, the program was rather easy to explain. 

In spite of these considerations, extensive arrangements were made 
to teach the trade the program before it was initiated. A new sound 
slide film was widely distributed and exhibited at meetings under 
the leadership of OPA commodity specialists in the 106 district OPA 
offices. Bulletins were distributed at these meetings and later mailed 
to every person affected. 

It is never possible, of course, to get enough trade education for a 
national program. Nonetheless, the coverage was apparently fairly 
thorough since the program got off to a good start. It is important 
to remember in this connection, however, that a large proportion of 
accounts were concentrated in a small number of large banks, and that 
fairly good instruction was given each depositor by a bank officer at 
the time his first account was opened. 

The Program Begins 

On January 27,1943, the ration banking system went into operation. 
At that time it included the sugar, coffee and gasoline rationing 
programs. 

OPA invited the participation of every commercial bank in the 
Nation. 8 The agency had no count of banks that responded to the 
invitation, but the overwhelming majority did so. A number of banks 
were in localities too small to have eligible merchants so that there 
was no reason for them to participate. Of those whose services were 
requested by merchants, certainly less than one hundred refused to 
take part. There was no part of the country where ration banking 
facilities were needed but not available. Probably 12,000 banks and 
2,500 branches were taking part in the program by the end of February. 

8 Sec. 1305.405 (b) of General Ration Order 3 defined as eligible “any bank or trust com¬ 
pany under any State or Federal law, which is authorized to and does, on the effective date 
of this order, maintain dollar accounts (not including savings accounts), subject to with¬ 
drawal by check or other payable on demand.” 



51 


The Installation of Ration Banking 

The program as installed was identical to that described previously 
as having been tested in New York, with the changes subsequently 
indicated. Approximately 200,000 sugar retailers, wholesalers and 
refiners, 200,000 coffee retailers, wholesalers and roasters, 9 and 30,000 
gasoline distributors were affected. No institutional users (restau¬ 
rants, hospitals, etc.) or industrial users (bakers, bottlers, etc.) were 
included at first, but the banks were told that they would be within 
the near future. 

The installation of the program was quite smooth. Certain adjust¬ 
ments inevitably had to be made, but the reception by the trade and 
the banks was generally good. The system seemed to operate well, 
and millions of pounds of sugar and coffee and gallons of gasoline 
began flowing across the country on ration checks. Ration banking 
had become a going concern. 

9 The coffee roaster was analogous to the sugar refiner. He converted the raw material 
to the product used by the consumer. It was at the roaster level in the coffee program 
that the currency flowback stopped. 






CHAPTER VI 


The Development of Ration Banking During 

1943 

From the modest beginnings in January of 1943, at which time 
three rationing programs were included, ration banking expanded 
rapidly, almost explosively, so that in July there were seven programs 
• being served. The chief characteristic of this period was the rapid¬ 
ity of change—a month never passed without major additions or 
major changes. This had a considerable effect on the program, pre¬ 
cluding the possibility of a satisfactory study of the many problems 
that inevitably arose, and undoubtedly impairing the effectiveness 
of the program. 

Addition and Elimination of Rationing Programs 

(a) Processed foods— On March 1, 1943, scarcely a month after 
ration banking was installed, the processed foods rationing system 
was launched. 1 The eligibility standards for ration banking were 
the same as those for sugar and coffee so that the banks received an 
additional 200,000 accounts. 

Here, however, the similarity ended. In two ways, the processed 
foods program was larger than all others combined. FirstJ it was 
a “point” program; consumers were issued 48 points each month, 
and the many types of processed foods that were rationed under 
the programs were given point values. The 48 points were given each 
consumer by validating each month three strips of stamps in War 
Ration Book II (at first), each strip containing four stamps numbered 
1, 2, 5 and 8, the numbers denoting the value of the stamp. Each 
strip contained a letter, which was used to identify the stamps vali¬ 
dated. In March of 1943, for example, the A, B and C stamps were 
valid. 

In terms of the volume of currency, therefore, this program 
dwarfed all others. Whereas in sugar each person received one or 
two stamps per month (depending on the value of the stamp), each 
person received 12 in processed foods. This had great significance 

1 Ration Order 13, March 1, 1943. 8 P. R. 1840. 


53 





54 A History of Ration Banking 

to the banks, since it meant more frequent and very much larger 
deposits. 

Second, unlike the sugar retailer, the processed foods retailer, 
because so many items were included in the program, purchased 
from a number of different suppliers, and purchases were made fre¬ 
quently. For these reasons check activity was far greater. 

(b) Meats , fats, fish and oils .—On March 29, 1943, OPA’s largest 
program was launched and put into the banks. 2 . Like processed foods, 
the meat and fats’ program functioned on a point basis. Sixty-four 
points per month per consumer were validated in four strips of 
stamps, again having the individual values of 1, 2, 5 and 8 points, 
which meant that 16 stamps per person every month were injected into 
circulation, or the stupendous monthly total of 2 billion stamps. 

In addition, for the first time a number of perishable items were 
rationed, so that frequency of purchase was very high. At the height 
of rationing there were more meat ration checks written than all 
others combined, and in terms of ration banking costs, this one pro¬ 
gram always amounted to about half the total. 

(c) Shoes .—The shoe rationing program was announced to a 
startled Nation on February 7, 1943. 3 Two months later it was in¬ 
cluded in ration banking. The lag was made necessary because of the 
complete secrecy that had to precede the announcement, which made it 
impossible to give advance instructions to the banks and permit them 
to acquire the neeessarf forms and supplies. 

Secrecy was more imperative in planning the shoe program than 
in any other. The number of shoes purchased by the average person 
in a year is very small, so that any buying spree, which would surely 
have been touched off by rumors of rationing, might well have taken 
from the market a year’s normal purchases or more. With inventory 
low and production lagging, this action would have stripped the 
shelves bare before the program started, making it almost impossible 
for rationing to accomplish its purpose. 

Between February 7 and April 5, shoe rationing above the con¬ 
sumer level operated on “credit”. A stamp in War Ration Book I was 
designated as valid for one pair of shoes for the consumer. Dealers 
collected these stamps as they sold to consumers, but held them until 
April 5. Meanwhile they were required to keep a record of all pur¬ 
chases and to incur a ration indebtedness therefor, to be paid after 
ration banking began to operate. Following April 5, the program 
operated substantially like the others, though it was always relatively* 
small and inactive, and rarely caused any trouble. 

In only one respect did shoe ration banking differ from other ration 


2 Ration Order 16, March 29, 1943. 8 F. R. 3591. 

3 Ration Order 17, February 7, 1943. 8 F. R. 1749. 



55 


The Development of Ration Banking During 1943 

banking programs. Tlie eligibility standards were established so that 
any retailer having a dollar bank account must open a ration account, 
whereas a dealer not having a dollar bank account was not permitted 
to open a ration account. The result of this provision was that about 
80 percent of the retailers, including some of the very smallest, had 
accounts. This was a far higher percentage than in any other program 
and created some problems at first, in that bankers quite generally ob¬ 
jected to handling accounts of the smallest retailers. They held con¬ 
sistently to the idea that only the largest retailers should be permitted 
to open ration accounts. 

The reason for the difference in respect to eligibility between shoes 
and other programs was the conflict between the ideas of the planners 
of shoe rationing within OP A and those held in the ration banking 
group. Those responsible for the shoe program maintained that the 
controls over the shoe distribution system would be complete only if all 
retailers were treated similarly; they also objected to discriminating 
against some retailers on grounds of size. The ideas of the two groups 
were ultimately reconciled by compromise, to the complete satisfaction 
of neither. About 80,000 accounts were added by this action. 

(d) w Bulk consumers ” of gasoline .—On June 1,1943, gasoline ration 
banking was expanded to include the larger “bulk consumers” of gaso¬ 
line. 4 Bulk consumers w T ere defined as those who took delivery of 
gasoline into their own storage tanks for their own use and not resale. 
They included such establishments as railroads, bus lines, taxicab 
companies and the like. They corresponded to the institutional and 
industrial user in food. 

Prior to their inclusion in ration banking, they received theii* 
periodic rations in the form of bulk coupons, which came in denomi¬ 
nations of one and 100 gallons. The coupons were transferred by the 
bulk consumer to a distributor as gasoline was purchased from time 
to time. The number of bulk coupons issued was substantial and they 
were subject to theft, diversion to unauthorized use, and counterfeiting. 

The inclusion of the larger bulk consumers which added about 50,000 
accounts, removed the hazards enumerated above and also substan¬ 
tially reduced local board workload, since it was much simpler to issue 
one certificate than a large number of coupons. The accounts could be 
handled easily in the banks, since there was only an occasional credit 
(at the time the ration was issued), the balance of the activity being the 
checks written as gasoline was purchased. 

( e ) Fuel oil .—The final program to be added to ration banking was 
fuel oil rationing, the addition taking place on July 1, 1943, when 
the new 1943-44 fuel program began. 5 6 Fuel had been rationed the 

4 I. e., those whose monthly ration was in excess of 980 gallons per month. Amendment 

50 to Ration Order 5C, May 15, 1943. 8 F. R. 6846. 

6 Amendment 67 to Ration Order 11, July 1, 1943. 8 F. R. 9137. 



56 


A History of Ration Banking 

previous year but had not been in ration banking, primarily because 
of the complexity of the first year’s currency system. 

Fuel rations were issued each season to fuel consumers in the form 
of sheets of coupons. There were five periods in the heating season, 
each with certain coupons designated as valid. In addition there were 
10 geographic zones, based on climatic conditions, each having the 5 
periods. Finally, most of the coupons were good for so many units, 
and OPA altered the value of the unit from time to time to meet 
changes in the supply or weather conditions. 

In the first rationing season, beginning and ending validity dates 
for the periods had differed from zone to zone, and it had been neces¬ 
sary on one occasion to reduce the value of a period coupon in the 
middle of a period. Since banks near the border between zones would 
receive coupons from several zones, and all banks would receive cou¬ 
pons from several periods, the complexities would have been ex¬ 
tremely great. 

The fuel program was put into banking in 1943 largely because of 
pressure from industry. A number of simplifications were adopted 
before this was done, the most important being the synchronization 
of the validity periods for all zones, and a combination of fortunate 
circumstances made it unnecessary to alter the unit value of fuel cou¬ 
pons during the 1943-44 season; as a result, fuel oil ration banking 
worked fairly smoothly. 

Included in fuel oil ration banking were all primary suppliers, deal¬ 
ers who sold in excess of 250,000 gallons per year, and consumers 
who used in excess of 50,000 gallons annually. Consumers using be¬ 
tween 20,000 and 50,000 gallons annually were given option of open¬ 
ing accounts. Under these circumstances, approximately 47,000 fuel 
accounts were opened, the smallest of any ration banking program. 
Volume of currency, however, was considerably greater than in shoes. 

(/) Termination of coffee rationing .—On July 29, 1943 the ration¬ 
ing of coffee was suspended. 6 It was decided that the only course of 
action OPA could pursue toward the coffee trade was to drop the 
program completely and suddenly, with no attempt to achieve a final 
reckoning of the rationing books. No other course appeared prac¬ 
ticable, because it was deemed to be impossible to gain compliance 
with reporting or currency provisions after the revocation of the 
ration order. 

The analogous course of action to follow with the banks would have 

been to stop posting and clearing checks, and throw all coffee ledgers 

away without further ado. This was judged to be unwise, largely 

on representation by the American Bankers Association Committee. 

This group persuaded OPA that such a move would generate a feelino- 
___ ~ © 


6 Amendment 47 to Ration Order 12, July 29, 1943. 8 F. R. 10672. 



57 


The Development of Ration Banking During 1943 

of indifference toward the remaining rationing programs and break 
down the attitude of concern and care which OP A and the Associa¬ 
tion were at such pains to build up in the minds of bankers. 

Accordingly, the banks were instructed 7 to refuse to accept any 
further deposits, but to process all items in the customary fashion. 
As of August 14, by which time it was assumed all checks would have 
cleared, they were told to make a proof of their coffee ledgers, to 
submit statements and cancelled checks to depositors and to place 
coffee ledgers in a dormant file. 

Ration Banking in the Fall of 1943 

By the fall of 1943 ration banking had reached maturity. No ad¬ 
ditional programs were added after that date, although there remained 
for some time the strong possibility that new programs might become 
necessary; a good deal of study was given to ration banking for the 
rationing of apparel, fresh milk, and soap, as well as a number of 
others, but fortunately it never became necessary to ration these 
commodities. 

With the six programs included, ration banking was a very large 
operation. The 14,000 participating banks were receiving reimburse¬ 
ment from OPA at a rate of $15,500,000 per year, which was one of the 
largest items in OPA’s budget. There were 1,200,000 accounts in the 
banks, into which 2,400,000 deposits containing 33,000,000 items were 
being made each month, and against which nearly 10,000,000 ration 
checks per month were being written. 8 

An operation of this size, which was developing so rapidly, was 
bound to create a number of serious problems. This was particularly 
so in view of the way the program had to be administered during the 
first six months. From the opening of the program through September 
of 1943, 35 separate communications were sent by OPA to the banks. 
Some of these were not of great significance, but many were, and almost 
all were issued under great pressure of time. The more serious prob¬ 
lems which developed during this period will be considered successively 
in the balance of this and the following chapter. 

The Small Food Retailer Problem 

It will be recalled that the regulations in the food programs had been 
so drawn that any retailer whose gross volume of food business was in 
excess of $5,000 in December 1942 was required to open ration bank 
accounts, whereas the smaller retailers were permitted to come into 
banking if they wished. The assumption had been that very few such 
retailers would in fact exercise this option. 

7 Coffee Memorandum No. 5, July 29, 1943. 

8 These figures are from itemized reimbursement claims submitted by the banks and tab¬ 
ulated by OPA. 


741926—47 


5 



58 


A History of Ration Banking 

This provision created trouble almost immediately. Many, if not 
most, banks were anxious to keep the number of accounts at a minimum, 
and tended to welcome ration accounts from their dollar customers 
while not wanting accounts from noncustomers who were generally not 
acquainted with banking procedures. As a result, many of the small 
retailers were persuaded by the banks not to open accounts. 

On the other hand, it was definitely to the advantage of wholesalers 
to have their retail customers in ration banking. Handling ration 
checks was infinitely more convenient than loose stamps and gummed 
sheets, particularly in view of the fact that many retailers were not 
prepared for the arrival of a delivery truck, whose driver accordingly 
was badly delayed while waiting for the buyer to count his stamps 
and paste them on the sheets. Many wholesalers, therefore, began 
immediately to suggest that their customers open ration accounts. In 
a seller’s market such suggestions were particularly persuasive; indeed, 
in a few cases wholesalers circularized all retail customers announcing 
that they would not sell to any who did not have ration accounts. 

The small retailer was between these two pressures exerted by the 
wholesaler and the bank; he usually followed his wholesaler’s advice, 
and the bank ultimately had to open the account since the regulation 
was clearly in favor of the retailer. As a result, banks began to object 
strenuously to the regulation and ask for a change. 

By and large, it was the larger banks in the larger cities which were 
most anxious for the change. They objected to the amount of educa¬ 
tion required for the many small accounts and complained of the 
expense involved in returning so many erroneous deposits. 9 In a 
few cities, Philadelphia for one, the banks and the wholesalers associa¬ 
tion met and agreed that the banks would accept accounts from all 
retailers having a gross monthly food volume in excess of $2,500, and 
wholesalers would refrain from asking any smaller retailors to open 
accounts. This worked satisfactorilv as an informal agreement, but 
the American Bankers Association was pressing for a formal change 
in the regulations. Since the original intention had been that only 
a few of the smaller retailers would open accounts, and since this 
intention was being very generally violated OPA agreed to a change. 

It was decided to follow the Philadelphia example and a change 
in the regulation was accordingly announced to the banks in April 
1943. 10 This change eliminated the option entirely and reduced the 
$5,000 figure to $2,500, leaving all other eligibility provisions un- 

9 In the establishment of the reimbursement schedule, this item of cost was not considered. 

“Amendment 55 to Ration Order 3, April 27, 1943. S F. R. 5318. Amendment 30 to 
Ration Order 12, April 27, 1943. 8 F. R. 5318. Amendment 11 to Ration Order 13, April 

16, 1943. 8 F. R. 4784. Amendment 3 to Ration Order 16, March 30, 1943. 8 F. R. 4137. 

The change was announced to the banks in Manual Memorandum No. 3. April 3, 1943. 



59 


The Development of Ration Banking During 1943 

touched. Retailers whose gross monthly business had not exceeded 
$2,500 in any month since December 1942 and had already opened 
accounts were required to notify their banks and to withdraw their 
balances and close out their accounts within 3 months. 

This provision satisfied the American Bankers Association and 
most of the larger banks, and was acceptable to the national whole¬ 
salers associations. It turned out, however, to be no solution at all. 
The smaller banks immediately began to object to the idea of having 
to eliminate their small retail accounts. They pointed out that the/ 
result would be a considerable inconvenience to their small depositors 
whom they were perfectly willing to carry. 11 OPA’s mail was em¬ 
phatic and sustained on the point. Most of it came from banks in 
small communities where the banker was closer to the depositor, 
although the sentiments were shared by a few of the large aggressive 
banks who viewed the small retailer as a potential customer and 
welcomed the opportunity to have him come into the bank. 

OPA was sufficiently alarmed at the attitude of the banks during 
April that on May 1 a memorandum was sent to all banks reading 

in part as follows: 12 

\ 

We have received numerous letters from banks throughout the Nation that 
they would like to continue to maintain on their books the retail food accounts 
that are below the $2,500 level. ... If the above feelings expressed by many 
banks continue to prevail, we shall consider a change during the coming 
90-day period, granting to the banks the option of maintaining such food 
accounts. 

This memorandum was issued as a suggestion to the banks that 
the decision apparently reached on April 3 was not irrevocable, and 
so that they would realize that they need not make haste in closing 
their smaller accounts before the deadline. It was also a frank bid 
for a show of hands, which seemed important in view of the fact 
that the American Bankers Association felt that the change should 
be allowed to stand in spite of the bank mail being received by them as 
well as by OPA. 

The result of the memorandum was to increase the volume of mail 
which continued to run heavily in favor of permitting the small 
accounts to be retained. In July of 1943 the regulations were 
changed 13 and on June 23, OPA issued Information Memorandum 
No. 8 which acceded to the many bank requests. It permitted the 
accounts under $2,500 to be retained by any bank that wished to 
do so, the only condition being that the bank must adopt a uniform 


11 Some even offered to do this without reimbursement. 

12 Information Memorandum No. 6, May 1, 1943. 

13 Amendment 71 to Ration Order 3, July 12, 1943. 8 F. R. 9304. Amendment 45 to 

Rition Order 12 July 12, 1943. 8 F. R. 9305. Amendment 45 to Ration Order 13, July 

12, 1943. 8 F. R. 9305. Amendment 46 to Ration Order 16, July 12, 1943. 8 F. R. 9305. 



60 


A History of Ration Banking 

policy with respect to all its depositors. If it permitted any of its 
small accounts to remain, all had to have the same privilege. 

With the issuance of this memorandum and the change in the food 
regulations, this problem was solved, though only in the sense that 
the pressures disappeared. A few comments appear to be in order 
about this sequence of events. The “solution” was really a reconcilia¬ 
tion of a number of pressures. It did not establish uniformity of 
treatment for smaller retailers, at least as among banks. A retailer 
whose gross volume of food business in December 1942 was between 
$2,500 and $5,000 was permitted to have accounts only if his bank 
decided to accept such accounts. Since it was generally agreed among 
retailers that food ration bank accounts w T ere desirable, is appears to 
have been questionable public policy to place this authority in the 
banks. 

The public interest in the matter was confined to the expenditure of 
a rather small amount of public funds for the maintenance of the 
additional accounts, and the additional deposits and checks. 14 During 
the discussions, however, the mattel* of budget was not considered in 
arriving at the decision. Had this been the case, it is unlikely that the 
final change granting the bank option would have been made. 

The regulations were amended during the spring to change the 
determining month from December 1942 to “December 1942, or . . . 

any single calendar month since December 1942.” 15 This enabled new 
establishments and those which were growing during this period to 
participate at the proper time. 

The Institutional and Industrial User Problem 

When sugar and coffee were the only foods rationed there was no 
particular need for the inclusion of institutional or industrial users 
of food in ration banking. Periodically these users were issued a 
single certificate by OPA in the amount of their allotment. Char¬ 
acteristically they purchased from a single supplier, and the custom of 
transferring the certificate immediately to the supplier developed 
early in rationing. Either the entire delivery of sugar or coffee was 
then taken, or the supplier considered the certificate as a deposit to be 
drawn against during the allotment period. No currency problem 
arose. 

With the development of the plans for the processed foods and meat 
and fats programs, however, new arrangements had to be made. In 
those programs purchases would not only be frequent but, because of 
the many different foodstuffs rationed in one program, an institutional 

The items of course would have been deposited anyway, though by a different depositor. 

18 Amendment 55 to Ration Order 3, April 21, 1943. 8 F. R. 5318. Amendment 30 to 

Ration Order 12, April 27, 1943. 8 F. R. 5318. Amendment 11 to Ration Order 13, April 

16, 1943. 8 F. R. 4784. Amendment 3 to Ration Order 16, March 30, 1943. 8 F. r! 4137. 



I 


T-he Development of Ration Banking During 1943 61 

user would necessarily purchase from many different suppliers. He 
would, therefore, have to have a method for making a number of pur¬ 
chases with ration currency during the allotment period; a single 
certificate would not be satisfactory. Planning went forward, there¬ 
fore, to bring institutional and industrial users into ration banking. 

It was assumed that these accounts would be generally more attrac¬ 
tive to banks than others. They differed from other accounts in that 
they had very little credit activity. Aside from an occasional refund 
check their only deposit would be the allotment certificate each two 
months for institutional users and each three months for industrial 
users. No particular trouble was anticipated, therefore, in permitting 
all institutional and industrial users to open accounts. 

The program was announced to the banks on February 19, 1943, to 
be effective on March 1, the date processed foods rationing began. 16 
As soon as the meat and fats program was installed, a reaction from 
the banks developed that was similar to that from the small retail 
accounts, though probably even more violent. In the two-point pro¬ 
grams all institutional users, in practice, had to open accounts even 
though they were not legally required to. Particularly in meat and 
fats, the small institutional user had to buy from many suppliers and 
simply could not operate with a single certificate for two months. 

As a result, every bar and grill owner, hamburger stand operator 
and popcorn vendor presented himself at a bank to open a ration 
account. Many of them were unable to speak or w T rite English. In 
the South the problem was complicated by the racial situation; the 
owner of a tiny Negro bar had as much need for, and right to, a ration 
account as the owner of the finest hotel in Atlanta. There was a 
danger at one time that all the banks in one of the southern States 
would withdraw in a body, which would, of course, have created a 
critical situation. 

Aside from the bank reaction, it was obvious that it was uneconomical 
to have all institutional and industrial users in ration banking. The 
situation developed because improper advance planning had taken 
place, primarily because of the tremendous pace of developments in 
those months which frequently made adequate planning impossible. 

At any rate the problem was not easy to solve quickly. The only 
real solution could be the printing of a new form of ration currency 
which could be issued to the small institutional and industrial users to 
be used in lieu of ration checks. Plans were made as rapidly as pos¬ 
sible to do this but the printing of ration currency is a lengthy process. 
Some more immediate action was required. 

There had been a recent change in administration at OPA. In an 
effort to allay the growing bank unrest, the new Administrator sent a 


16 Information Memorandum No. 2. 



62 


A History of Ration Banking 

letter to all banks in April 1943 expressing his appreciation for the 
assistance they were rendering in the rationing programs. He listed 
a number of ration banking problems on which OP A was then working 
and named the small institutional user problems as the first of these. 
His letter stated: “We are planning a definite cut-off for the smaller 
institutional users by providing them with a book of ration stamps 
with which to purchase.” 17 

One other step was taken immediately. The local rationing boards 
were instructed to attempt to persuade small institutional and indus¬ 
trial users not to open or use bank accounts, and to split their allot¬ 
ments into as many as six different certificates if such treatment would 
permit them to conduct their business without resort to ration banking. 
This move was not particularly effective since it was so much simpler 
for the board to issue one certificate than six. The device was not 
widely used, but OPA was able to use it as a talking point with the 
banks. 

By the end of the summer the new coupons (rather than a book) 
were ready for issue by the boards, and the change was made at the 
September 1 allotment period. At that time institutional users serv¬ 
ing 3,000 meals per month or less were issued coupons instead.of a 
certificate. This was also done for industrial users using less than 
2,000 pounds of the rationed foods in their base period. These users 
were required to close their accounts by November 1,1943. No change 
was made in the sugar program because, for reasons cited above, the 
problem never developed in that program. 

With the issuance of this notice of change 18 to the banks in August 
the problem was solved. For the duration of the problem, the Ameri¬ 
can Bankers Association assisted in urging restraint and patience on 
the banks, while at the same time urging speed on OPA. 

17 Letter, Prentiss M. Brown, “To All Banks Participating in Ration Banking.” April 
12, 1943. 

18 Information Memorandum No. 12, August 17, 1943. 



CHAPTER VII 


Verification of Stamps and Coupons Deposited 

in Banks 

# 

The gummed sheets, the use of which has been described at an earlier 
point, were an ideal means of assuring an accurate counting of stamps 
and coupons as they moved through the trade to the banks. A partial 
departure from the gummed sheet device in March of 1943 created a 
set of problems which were solved only after a number of significant 
changes in the rationing flow-back system were made. 

The departure was caused by two sets of factors: A production prob¬ 
lem and a trade problem. As to the first, the gasoline program was 
consuming an estimated 20,000,000 gummed sheets per month, the 
sugar and coffee programs 3,000.000 each, and the fuel oil program 
10,000,000, a total consumption of about 35,000,000 sheets each month. 
With the institution of the processed foods program this figure would 
have been increased by 60,000,000, and meat and fats might well have 
added another 90,000,000. 

The production of gummed sheets was a highly specialized job, 
requiring rather unique drying facilities. As a result, not many pro¬ 
ducers were capable of manufacturing them. In addition, their proc¬ 
essing required an ingredient in very short supply needed for proc¬ 
essing V-mail letters, so that materials as well as productive facilities 
were a limiting factor in the situation. It became apparent that it 
would be extremely difficult if not absolutely impossible to satisfy the 
demand for gummed sheets under full-scale rationing. 

In addition, the food industry made representations to the effect 
that it would not be possible for retailers to handle the immense flow of 
stamps if they were required to affix them all to gummed sheets. They 
claimed to be experiencing difficulty in sugar, which would of course be 
dwarfed into insignificance by the two point programs. 

These representations were difficult to discount. There would be 2 
billion red stamps and a billion and a half blue stamps to be processed 
every month; even when divided among a half million retail outlets, 

63 



64 


A History of Ration Banking 

the burden was great. Averages are meaningless because of the great 
range of size of food stores, but even without using gummed sheets, 
many an owner of a small store spent his Sundays with his family 
processing ration stamps. At a chain or supermarket headquarters 
as many as 30 employees worked full time on nothing but ration 
stamps. 

These hard cold facts made it necessary to develop a substitute for 
the gummed sheets. Unfortunately this had to be done very hurriedly, 
and just before the processed foods program was installed. It was a 
severe shock to the ration banking program. 

A hasty examination of all possible alternatives led to the adoption, 
in the food programs, of the use of envelopes instead of gummed 
sheets. 1 The retailer was required, before transferring or depositing 
his stamps, to sort them into denominations and insert them in en¬ 
velopes. The envelope was then sealed and a certification as to the 
contents signed by the retailer. If they were transferred before de¬ 
posit the transferee was not permitted to open the envelope, but was 
required to accept them at declared value. If a subsequent discrepancy 
was uncovered the original inserter only was held liable. 

Because of the haste in which this change was made, OPA was unable 
to supply standard printed envelopes to the trade immediately. The 
regulation 2 provided, therefore, that any sort of envelope could be 
used temporarily. The only restriction was that no- more than 500 
stamps could be inserted in any one envelope. 

By May a standard and official envelope had been printed and dis¬ 
tributed and came into general use. This tended to lessen the con¬ 
fusion considerably, since instructions for its use were printed on it. 
At the same time OPA authorized the use of so-called “bulk” en¬ 
velopes. These were used by the large stores, supplied by them at 
their own expense, and their use differed from that of the standard 
envelopes only in that they were to contain either exactly 2,000 or 
5,000 stamps. They were very generally used by stores accumulating 
substantial numbers of ration stamps. 

The departure from gummed sheets was made only in the food and 
shoe programs. Gasoline and fuel oil dealers continued to use gummed 
sheets. The result of the change was undoubtedly to loosen substan¬ 
tially the control of the flow-back. It also created an immediate prob¬ 
lem of how to verify the contents of the envelopes. It should be em¬ 
phasized that the change was made with extreme reluctance by OPA, 
and only because it was simply impossible to continue the universal 
use of gummed sheets. 


1 The change was made on February 27, 1943. 

2 General Ration Order 7, March 5, 1943. 8 F. R. 2858. 



65 


Verification of Stamps and Coupons Deposited in Banks 

The Dispute With Organized Banking 

One of the most significant effects of the introduction of the en¬ 
velope system was the serious disagreement between OPA and organ¬ 
ized banking over the question of verification. The American Bank¬ 
ers Association’s Ration Banking Committee worked closely with OPA. 
A subcommittee came to Washington every week for the first year or 
so to discuss problems and offer advice. This subcommittee was kept 
well informed of all developments and made many major contributions 
to the program; it worked very well with OPA and the two parties 
were generally in agreement. 

From the first, however, the committee opposed the whole idea of 
using envelopes, considering it a departure from sound banking prin¬ 
ciples, and was very much against having the banks undertake any 
verification of envelopes. OPA, on the other hand, anticipated ask¬ 
ing the banks to spot check the envelopes, in order to maintain a 
semblance of control until a more satisfactory method could be devised. 
Because of the Association’s opposition, among other reasons, this 
was not done at the time the change was announced to the banks. 

The change to envelopes meant a considerable decrease in workload 
to the banks. . Since many more stamps were in each envelope than 
would have been on each gummed sheet, fewer “items” would be 
handled in the banks. Correspondingly, since reimbursement was 
based in part on the number of items handled, the change also meant 
a decrease in revenue to the banks. OPA had in mind to ask the banks 
to undertake to verify the contents of a percentage of the envelopes 
(at a fee) which would require about the same amount of work and 
yield about the same amount of reimbursement as would have been 
present if the change had not been made. It would require study, of 
course, to determine such a percentage. 

In announcing the change to envelopes to the banks OPA stated that 
“Banks are not required to verify the contents of envelopes at pre¬ 
sent.” 3 It went on to say, however, that a spot check would later be 
required in terms similar to those indicated in the previous paragraph. 
The memorandum also instructed the banks to retain 10 percent of all 
envelopes deposited until further notice and to cremate the remainder 
periodically. 

For three months following the issuance of this memorandum, the 
Association attempted to persuade OPA not to impose a verification 
requirement on the banks. They insisted that the banks would with¬ 
draw if it was done, that it was not sound banking, that the workload 
would be too great, and that it would teach bank employees bad habits. 
They suggested as a counter measure that OPA establish centers to 
which the envelopes could be shipped by the banks for verification. 


3 Information Memorandum No. 3, March 3, 1943. 



66 


A History of Ration Banking 

This idea had merit and work was begun shortly to devise such a 
plan, but OP A was convinced that action had to be taken much sooner 
than any such plan could be worked out. Spot checks in banks by 
OPA field staffs began to show a growing laxity on the part of the 
trade as the realization spread that no verification was taking place. 

OPA was constrained to move cautiously because of the risk of 
wholesale bank withdrawal from the system, particularly since the 
Association had declared its intention of circularizing its membership 
(which included 95 percent of the banks) if OPA imposed a verifica¬ 
tion requirement on the banks. Decision was finally reached late in 
May that the risk could be run, and had to be run if the integrity of the 
rationing programs was to be preserved. The decision was reached 
in part because independent checks had persuaded OPA that the 
move, while certainly not popular, w T ould not lead to mass withdrawal 
by the banks. 

The instructions were mailed to the banks on June 2, 1943. 4 The 
memorandum was accompanied by a letter signed by the Price Admin¬ 
istrator explaining why the action was taken and requesting the coop¬ 
eration of all banks. It also pointed out that the verification plan 
was not considered a final one by OPA and that work was going for¬ 
ward on a more acceptable program. 

The instruction was that each bank was' to select at least three 
percent of the standard envelopes deposited, open them and count the 
contents. Any envelope with a discrepancy in excess of two percent 
was to be forwarded, with particulars, to the OPA district office. 
Suitable action against the inserter would then be taken by OPA. 

As anticipated, the Association released a bulletin to the banks on 
the same date the OPA letter and instructions went forward. 5 This 
bulletin informed the banks that OPA had issued its instructions over 
the strenuous objection of the Association and set forth in detail the 
reasons for the objection. These were listed as follows: 

1. Manpower is a problem in many banks. 

2. A customer relation problem will arise from the reporting of errors to the 
OPA ancl not to the depositor. 

3. The small percentage checked will make it difficult for the OPA to build up 
cases against violators. 

4. Employee morale will be demoralized if banks are required to conduct any 
part of the ration banking operation in a loosely controlled and inadequately 
safeguarded manner contrary to required banking principles. 

5. Any test check which the banks could make under this plan would be inade¬ 
quate to provide protection against fraud and gross irregularities. 

6. If at a later date it developed that fraud had been practiced generally the 
banks might justly be blamed for having agreed to participate in an inadequate 
verification procedure. 


4 Manual Memorandum No. 6, June 2, 1943. 

6 American Bankers Association, Ration Banking Bulletin No. 5, June 2, 1943. 



67 


Verification of Stamps and Coupons Deposited in Banks 

While the point was thus made crystal clear that the Association 
did not endorse in any way the verification program, the bulletin, in 
the concluding paragraph, requested the continued cooperation of the 
banks in ration banking. The bulletin concluded b}^ suggesting that 
each bank write OPA expressing its opposition. 

The banks responded well to the Association’s final suggestion, and 
during the month of June, 1,084 letters from banks were received. 
Two of those letters were favorable; 1,082 entered more or less stren¬ 
uous objection. No bank, however, withdrew from the program, and 
only 65 threatened to do so. The net result, therefore, was that from 
June 2 on a certain amount of verification was done. The instruction 
was that banks were to do “at least” three percent and later reimburse¬ 
ment reports showed that about five percent of all envelopes were being 
verified by the banks, though there were some banks doing no 
verification. 

At the district offices notice was received from the banks whenever 
discrepancies were discovered. In addition, banks sent ten percent 
of the bulk envelopes to the district offices where their contents were 
counted on specially constructed precision weighing scales. 

Under General Ration Order 3, OPA had authority to “debit, 
credit ... or otherwise deal with any ration bank account.” 6 Ac¬ 
cordingly, whenever a discrepancy appeared in an envelope which 
was deposited by the same person who sealed it, a “debit slip” (OPA 
Form R108) was filled out in the district and mailed to the depositor’s 
bank, separate advice going to the depositor. The debit slip was 
handled by the bank like a ration check—the debit was posted, the 
slip canceled and returned in the statement of the depositor. 

Where the discrepancy occurred in an envelope which was sealed 
and certified by someone other than the depositor (for example, by 
a retailer without a ration bank account) the procedure had to be 
different. The depositor in such a case was innocent and no action 
against him was taken. Instead, the district office wrote directly 
to the sealer of the envelope and required him to return stamps in 
the amount of the shortage. In both cases, of course, any person 
consistently shorting envelopes or stuffing them with alien matter 
received more serious enforcement attention that a mere debit or col¬ 
lection of the shortage, either in the nature of suspension from the 
purchase and sale of the commodity or criminal prosecution. 

While the spot check secured under the bank verification program 
was of considerable assistance in controlling the flow-back, it was 
unsatisfactory in a number of ways. The check was too small and too 
expensive. It ivas inflexible in that OPA could not direct the selection 
of the three percent in each bank. And finally, OPA was committed 


6 Section 1305.412. 



6g A History of Ration Banking 

to the banks to evolve a better program and relieve them of an un¬ 
popular chore. 

These considerations led to the development of the verification center 
plan which was installed in the summer of 1944. The delay is ac¬ 
counted for by the fact that the ration token program (to be described 
in the next chapter) had to be installed first in order to reduce the 
volume of currency to manageable proportions. The verification cen¬ 
ters were the logical conclusion of the chain of events set in motion 
by the substitution of envelopes for gummed sheets. Only when they 
had been established and were operating was real control oyer the 
flow-back system regained. 

The Verification Centers 

The spot check of envelopes by the banks and the limited additional 
checking that was done by OPA field personnel in the banks undoubt¬ 
edly kept the system from breaking down entirely. But the check was 
not truly controlling the flow-back system and the trade was aware of 
it. The net result was a growing carelessness on the part of the trade; 
errors became more and more frequent. It is interesting to note that 
every substantial check indicated nearly as many overages as short¬ 
ages, lending weight to the thesis that it was carelessness rather than 
conscious cheating. Only very rarely was an envelope opened and 
found to contain newspaper or other foreign matter. 

In the fall of 1943 another development took place which somewhat 
altered the nature of the problem. OPA, in its occasional examina¬ 
tion of gummed sheets in banks, began to discover counterfeit gasoline 
coupons, most of them good enough so that the naked eye could not 
detect their invalidity. As this practice grew it enlarged the verifica¬ 
tion problem from one of envelopes to one of gummed sheets as well; in 
the early stages of planning it had been assumed that only the envelopes 
would come to OPA’s verification centers. 

These problems could be solved only if OPA established facilities to 
examine deposited items after the banks had received them. The plan, 
therefore, looked toward the establishment of so-called verification cen¬ 
ters, one in each of OPA’s eight regional cities, to which all stamps and 
coupons could be shipped periodically by the banks. These centers 
were equipped with special facilities for the detection of counterfeit 
stamps and coupons and the rapid counting of stamps. Incidentally, 
the establishment of the centers removed from the banks the cremation 
problem, which had never been adequately solved prior to that time. 

Bank Procedures and Verification Centers 

Because it would eliminate the troublesome currency destruction 
problem and because of their opposition to verifying envelopes, the 


69 


Verification of Stamps and Cotipons Deposited in Banks 

banks were strongly in favor of the establishment of the verification 
centers. In working out the procedures to put the plan into operation, 
the banks, through their association committee, gave much assistance. 
Planning took a number of months since the project was a large one, 
requiring a number of substantial changes in the ration banking plan 
and the procurement of a considerable amount of space, equipment and 
personnel by OP A. 

The plan was presented to the banks on June 10,1944, in a memoran¬ 
dum entitled “The Regional Verification Plan.*' The beginning of 
the program was staggered so that banks in 26 States began to partici¬ 
pate on June 14, those in 15 additional States on July 15, and the bal¬ 
ance on August 1. The stagger system was used because of the impos¬ 
sibility of making accurate workload estimates, and because of the 
desire to avoid having the full load descend on the newly organized 
centers at one time. Some of the OPA district offices had also made 
informal arrangements with their banks which were sending gasoline 
gummed sheets to the district office for follow-up there against counter¬ 
feiting. OPA was anxious not to disturb this situation where it was 
working effectively until it was sure the verification centers were able 
to handle the job. 

With respect to the acceptance of deposits, very little change was 
made in the responsibility of the banks. They wereAo continue to 
prove all deposits, though they were to accept the depositor’s declara¬ 
tion as to the contents of envelopes. They were to continue to insist 
that each item contain all required information; this became more im¬ 
portant, incidentally, since the centers would have no deposit ticket or 
signature card to refer to for information. OPA's responsibility was 
to examine stamps and coupons to detect counterfeits and to open enve¬ 
lopes and count their contents. The banks were instructed that when 
the verification center programs w 7 ent into operation in their States, 
they were no longer permitted to open envelopes for any reason. 

Items v T ere to be forwarded to the centers by the banks at least 
twice monthly, more frequently if they wished. The items could be 
mailed, or, in the case of banks in verification center cities, delivered 
by messenger. A number of the large banks took advantage of the 
latter option. 

Each bank was furnished by OPA with a book of gummed labels, 
similar to a check book, each label having a stub. The labels (and 
corresponding stubs) were numbered consecutively as packages were 
mailed. The label was imprinted with the appropriate verification 
center address and required no postage. Through an arrangement 
with the Post Office Department, packages bearing such a label w^ere 
handled in transit much like registered mail. The sending bank re¬ 
ceived a Post Office receipt at the time of mailing as its record that 
the shipment had been made, and was required to retain this receipt. 


70 


A History of Ration Banking 

It may be noted that this receipt was for a package mailed, and not 
for the contents of the package. It would be quite possible for such a 
package to be opened by a clerk en route to the post office, and re¬ 
sealed and mailed. To tie up this loophole, the procedure called for 
the bank to mail separately an advance shipment notice to the verifica¬ 
tion center, against which the actual contents of the shipment could 
be checked at the center. 

The advance shipment notice was a listing, in totals only, of the 
value in pounds, gallons, pairs and points in each program for which 
shipment was made. These figures could be obtained by the bank 
either by running the items before sending, or, if each day’s items were 
proved and placed in the vault, by running subtotals from the proof 
sheets for the period since the last shipment. Because of the work 
involved in proving a shipment in the verification centers, the per¬ 
centage of bank shipments proved was always very low. 

As a result of this procedure, the entire ration banking operation 
was for the first time provable. Items deposited were supported by 
deposit tickets. These had to equal the debit entries on the proof sheet 
which in turn had to prove to the entries on the advance shipment 
notice. Finally, those totals had to prove to the actual items received 
in the center. If these proofs were all made, OPA was assured that 
proper entries were made during the entire process and that all items 
received in the bank were in turn received by OPA. While this com¬ 
plete proof was rarely made, the possibility of making it was a sub¬ 
stantial contribution toward increasing the soundness of the system 
and a real improvement over the “open-endedness” of the cremation 
process. 

One other procedural change was significant. The verification cen¬ 
ters were established in such a way that it was vital that each item be 
completely identifiable as to depositor and to bank. The regulations 
had always provided that every item deposited must bear the endorse¬ 
ment of the depositor. Because action on an item discovered to be in¬ 
valid ordinarily called for the debit of the account of the depositor in 
the amount of the invalid item, it was necessary to know the name of 
the bank. 

Accordingly, the instruction to the bank stated that each item for¬ 
warded to the centers must have the bank name on it. Because it was 
realized that this would be a very burdensome requirement for some of 
the banks having very large depositors, the suggestion was made that 
the depositor’s endorsement stamp contain the name of the bank. 
This suggestion was followed in many instances. The bank endorse¬ 
ment requirement remained a problem for many months. Many banks 
persisted in sending unendorsed items, and only after the most 
strenuous educational work did the problem diminish in importance. 


71 


Verification of Stamps and Coupons Deposited in Banks 

The Operation of the Centers 

It was several months before the centers began to operate efficiently. 
The job of staffing them and organizing them properly was difficult 
because it was a new operation that had to be learned by experience. 
Once the difficulties had been ironed out, they were able to accomplish 
a tremendous volume of work. 

At the receiving desk at each center the packages were checked 
off against the advance shipment notices and against a bank list. 
If anything was obviously wrong with the shipment, or if a bank 
was not shipping frequently enough, a mimeographed notice was for¬ 
warded to the bank. Any shipment to be proved was sent immedi¬ 
ately to the bank proof unit. 

The packages were then opened and the contents sorted. Gummed 
sheets were sent to the fluorescent lighting equipment and to other 
testing devices, as well as to persons who were trained to pick out 
coupons with serial numbers of stolen coupons. The extent of cover¬ 
age depended on availablility of manpower and the general state of 
counterfeiting. For example, fuel oil coupons were almost always 
destroyed with no processing whatever because no counterfeit coupons 
were ever discovered in that program. A percentage of shoe stamps 
were checked for counterfeits, since they persisted in turning up now 
and then. But all gasoline coupons were always checked since that 
program seemed to attract most of the counterfeiters. 

Envelopes were sent to weighers who counted their contents on deli¬ 
cate scales. Sometimes, particularly in meat and sugar, the contents 
were also subjected to counterfeit tests. Some of the clerks became 
so expert that they could finger 750 stamps 7 in an envelope for a few 
seconds and pull out the 10 counterfeit stamps. At the peak of effi¬ 
ciency of the verification center operation, it is probably fair to say that 
very few counterfeit gasoline coupons, which were exclusively on 
gummed sheets, were not being detected. Shortages or counterfeits in 
envelopes were more difficult to handle, since their examination was a 
much slower process, but a creditable job was eventually done in this 
field as well. 

Most of the items, of course, survived the various validity tests 
and were either put through a macerator or convoyed under armed 
guard to a paper mill for reclaiming. Those items which were in¬ 
valid for one reason or other were put aside for separate treatment. 

The Debiting Programs 

k 

Invalid items were sent to what was known as “the debiting unit” 
in the verification center. In meat, processed foods, shoes and fuel 

7 The original limitation of 500 stamps to an envelope was raised to 1,000 when the 
small stamps in War Ration Book IV came into use. Amendment 6 to General Ration 
Order 7, December 20, 1943. 8 F. R. 16839. 



72 


A History of Ration Banking 

oil, the items were then sent to the OPA district office having jurisdic¬ 
tion over the bank of deposit (ordinarily, of course, the depositor’s 
district office also). If the item had been prepared by the depositor 
(i. e., if he had instered the stamps and sealed the envelope, or had 
affixed them to the gummed sheets) the district office instructed the 
bank to enter a debit against the account in the amount of the invalid¬ 
ity. If another person had prepared the item and transferred it to 
the depositor, the district office wrote the original person directing him 
to send to the district office valid currency in the appropriate amount. 
In other words-, the system operated as it had while the banks had 
been verifying, except that counterfeits were included as well as short 
envelopes. 

This was less efficient and less effective than the sugar and gasoline 
debiting systems which were operated by the verification centers di¬ 
rectly. For illustrative purposes the gasoline system will be de¬ 
scribed; sugar was practically identical. 

It will be recalled that when the gasoline program was begun, each 
dealer and intermediate distributor registered with the local rationing 
board. At that time he indicated his gasoline storage capacity, and 
the board issued him currency equal in value to the difference between 
his inventory on hand and his storage capacity. Thereafter, if he 
always paid ration currency when buying and collected currency when 
selling, he would always have on hand a physical supply of gasoline 
and a gallon value of currency which, when added together, would 
equal his storage capacity. He was always expected to be able so 
to account for himself when called upon to do so, and his storage 
capacity as stated on his registration with OPA was his accountable 
figure. 

Another apparent digression is called for. The gasoline regulation 
required a dealer to detach the coupon or coupons from a customer’s 
book at the time of the sale, and to make sure that the license number 
on the book checked with the license number on the vehicle. This was 
significant because there was practically never an occasion where a 
gasoline book was counterfeited. If a dealer scrupulously observed 
this requirement, therefore, lie would practically never receive a coun¬ 
terfeit coupon. The general pattern of violation was for a dealer to 
sell gasoline ration free (at an illegal price also, of course) and to 
cover himself by buying counterfeit coupons. 

These facts are important because they meant that a dealer rarely 
collected counterfeit coupons “through no fault of his own.” A legiti¬ 
mate dealer could safeguard his business by exercising due caution, 
and OPA could proceed on the assumption that counterfeit coupons 
could be dealt with summarily without undue harm to innocent persons. 


73 


Verification of Stamps and Coupons Deposited in Banks 

Most counterfeit coupons were affixed to gummed sheets by dealers 
who did not have bank accounts. The debiting unit, in processing 
invalid coupons, prepared five notices to make the debit. Actually, 
these were form carbon notices and could be prepared very quickly. 

The first of these notices was a debit slip for use of the depositor’s 
bank in debiting the account. At first these debit slips were mailed 
directly to each individual bank, but this procedure was later changed 
and all debit slips were listed periodically on a regular ration banking 
transmittal letter and forwarded to the nearest Federal Reserve bank 
or branch. From there they were cleared to the various drawee 
banks just as though they were ration checks. In effect, the verifi¬ 
cation centers became eight additional sending banks in the clearing 
process. 

The second notice went to the depositor. It informed him that his 
bank account had been debited, that he was required to collect from 
the dealer or dealers valid currency to replace the debited items, and 
that until this replacement had been made he was not permitted to 
make sales to the dealer. When he secured replacement, lie made his 
deposit and his account was again in balance. The procedure placed 
no burden on the depositor to detect counterfeit coupons and worked 
no lasting hardship on him. 

The third notice was sent to the dealer who originally affixed the 
coupons to the gummed sheet. He was instructed that he must transfer 
to the supplier valid ration currency before taking any additional 
gasoline deliveries and that his registered storage capacity waa per¬ 
manently reduced in the amount of the invalid coupons. Any dealer 
who persisted in using counterfeit coupons, therefore, would event¬ 
ually be debited so much that his rationing capital would approach 
zero and he would be unable to continue in business. 

The fourth notice was sent to the dealer’s local board so that the 
appropriate reduction in the dealer’s registered storage capacity could 
be made on his registration form. The final notice went to the OPA 
district office where a similar record was kept. At this point a careful 
watch was kept of each dealer’s record so that more strenuous enforce¬ 
ment action could be taken against those dealers who were consistently 
dealing in counterfeit coupons. 

The debiting program was an attempt to deal with a counterfeiting 
situation essentially. Counterfeiting in gasoline, and later in sugar 
and meat, developed rather suddenly and for a while was distressingly 
widespread. OPA combatted the practice in two ways : first by trying 
to uncover the presses and makers, and second by drying up the market 
through the debiting program. Since the buyers of counterfeit cou¬ 
pons were almost always dealers, sales began to drop as soon as the 


741926—47 


6 



74 


A History of Ration Banking 


debiting program became effective. It proved an efficient means to 
combat a situation in which there were too many violators for OPA 
to be able to make progress by individual attention to violators. 

The gasoline debiting program was effective in reducing the use of 
counterfeit coupons. Until the fall of 1944 no reliable figures had 
existed to indicate what the counterfeit situation really was. The use 
of counterfeits after September 1944 and the effectiveness of the debit¬ 
ing work of the verification centers are apparent in the figures reported 
by the centers: 8 


Month : Number of counterfeit coupons 

October 1944_ 1, 264, 615 

November _ 1, 357, 556 

December_ 1, 981, 660 

January 1945_ 1, 087, 682 

February_ 333, 851 

March_ 365, 945 

April_ 327, 880 

May- 144, 638 

June _ 108, 863 

July_ 78, 611 

August_ 1 38, 935 


1 Rationing was terminated in the middle of August so that the final figure represents 
a half month only. 

In early 1945 a sugar-debiting program, identical in detail with gaso¬ 
line, was instituted. Shortages in envelopes as well as counterfeits 
were included. A similar program for meat and fats was about to 
be installed in the summer of 1945 when the approaching end of the 
war and the apparent early end of meat rationing forced abandon¬ 
ment of these plans. There was some discussion of a debiting program 
. for shoes, but this did not become serious until the war was about over. 
No consideration was given to a program for processed foods and fuel 
oil since neither counterfeiting nor envelope shortages ever became 
significant in those areas. The more or less casual and occasional 
debiting of bank accounts or collection of valid currency by district 
offices after detection by verification centers was evidently a sufficient 
deterrent in those programs. 

The verification centers thus became an integral part of the control 
of the flow-back. The need for this or some similar device became 
apparent after two developments had taken place: the introduction 
of envelopes and the rise of counterfeiting. The examination of 
envelopes and the detection of counterfeits were the two major func¬ 
tions of the centers. The banks retained the function of checldno; 
deposits for erroneous count of coupons or errors in addition, and out 
of date items. If both the banks and the centers performed perfectly, 


8 The centers reported twice each month to Washington where tabulations were made. 














Verification of Stamps and Coupons Deposited in Banks 75 

the flow-back would be perfect. Neither did, of course. The centers 
were never able to open and verify all envelopes, though they were 
extremely efficient at detecting counterfeits. And among the 15,000 
banks, there were bound to be some that did a poor job of checking 
deposits. Some of them, too, overlooked the bank endorsement on 
each item from time to time, which usually meant that if the center 
found something wrong it was powerless to act since it could not 
identify the violator. 

Nevertheless, the flow-back system was generally effective. The 
trade seemed to view it with respect, particularly in the latter stages, 
after it had been refined and improved. In spite of its imperfections, 
it served its purpose in allocating scarce commodities. 




CHAPTER VIII 


The Ration Token Program 

On February 27, 1944, blue and red ration tokens came into use as 
an integral part of the two large point food programs: processed foods 
and meat and fats. This was the most significant single change made 
in the flow-back system since the introduction of ration banking. It 
had a great impact on the ration banking system as well as on the 
rationing programs themselves, causing a number of substantial 
changes, and making others possible. 

Reasons for the Adoption of Tokens 

Fundamentally, the token program was the solution to the problem 
posed by the volume of paper used in the two point programs. It will 
be recalled that the meat program was using 16 separate stamps 
totalling 64 points per person per month. In processed foods, 12 
stamps totalling 48 points were put into circulation each month for 
each person. In other words, almost four billion stamps each month 
flowed into a half million retail stores and 15,000 commercial banks. 
Grave problems arose from this avalanche of paper. 

One of these, the problem of gummed sheets and verification, was dis¬ 
cussed in the previous chapter. The establishment of verification 
centers had to wait for the installation of the token program so that 
the volume of paper received would be manageable. So long as the 
bulk of paper remained so great, verification of envelopes remained 
physically impossible. 

Another problem arising from the rate of use of the stamps con¬ 
cerned ration books. The printing of ration books, with their safety 
paper, other security devices, and perforations, was a gigantic task. 
It was not feasible to print a book with more than four sheets of stamps. 
As a result, the two point programs consumed ration books at the rate 
of two per year. Not only did it cost in the neighborhood of a million 
and a half dollars to print a book and a like amount to distribute it, 
•but there was a question as to whether the printers could keep up with 
this rate of book use. 


77 



yg A History of Ration Banking 

In addition, the distribution of a ration book to every person in the 
land was a simply enormous task. It required thousands of volunteers, 
usually school teachers, and whether they could be mobilized as often 
as twice a year was at least questionable. Besides, lining up the Ameri¬ 
can people any more often than necessary was certainly to be avoided. 

The books contained stamps in denominations of one, two, five, and 
eight points in order to permit the customer to be able to pay her ration 
bills, no matter what the total might be within her allotment. The 
American consumer, however, found it difficult to add properly, and 
particularly in stores with check-out stands, lines moved distressingly 
slowly. Some supermarket operators informed OPA that a cashier 
collected only half as much cash in an hour as before rationing because 
of the need to help customers add their ration points, or because cus¬ 
tomers offered several ration books to the cashier saying “here, you do 
it; take whatever it should be.” In a time of severe labor shortage, 
this matter was serious to store owners who began to insist that OPA 
provide some relief. 

Retailers objected, too, to the processing of the stamps after they 
had been collected. It was necessary to sort the stamps into denom¬ 
inations before counting them and inserting them in envelopes. OPA 
required this because without it verification of any sort would have 
been utterly impossible. According to retailers it required about as 
much time to sort as to count; some of the larger stores used specially 
constructed weighing scales to count, but sorting remained a hand 
process. At one time OPA estimated that it cost retailers three 
million dollars per month in direct labor to process ration stamps. 1 

Trade unrest was stimulated when the- processed foods program 

exhausted the stamps in War Ration Book II and began using the 

stamps in War Ration Book IV. The significant factor in this 

change, which was made on November 1,1943, was that the new stamps 

were only half as wide as the old. In consequence, they were even 

more difficult to handle. In addition, the trade was aware of the fact 

that the meat program would have to make a similar transition on 

February 27, 1944. OPA was assured that such a situation would be 

completely intolerable and that even before that the system was in 

danger of collapsing of its own weight. 

> 

The Token Plan 

The answer to the problem seemed to be in some device which 
would enable the value of each stamp to be raised so that their quan¬ 
tity could be reduced. In the fall of 1942, while the meat and proc¬ 
essed foods programs were in the planning stage, some thought had 


1 Letter, Chester Bowles to Congressman Busby of Illinois, January 24, 1944. 



79 


The Ration Token Program 

been given to the use of a token as change, but the idea had been 
abandoned because it did not appear possible to obtain them in suffi¬ 
cient quantity. 

In April of 1943, the chairman of the American Bankers Associa¬ 
tion Ration Banking Committee suggested the idea, recommending 
that the possibility of using a porcelain token be examined. His sug¬ 
gestion came because he was interested in reducing the quantity of 
stamps in order to get away from the use of envelopes and back to 
gummed sheets, which were always favored by the bankers. 

Following his suggestion, a great deal of work was put into a 
search for some material which was available in quantity, adapted 
to speedy manufacture and relatively immune to the efforts of coun¬ 
terfeiters. The details of the search are not germane to this discus¬ 
sion; suffice it to say here that vulcanized fiber was finally found to 
be satisfactory and the plans then proceeded. 

In brief, the program called for the setting of a value of ten points 
on all stamps in each program. Tokens were assigned a value of on© 
point each. Whenever a purchase was made which resulted in a 
point total not divisible by 10, the consumer supplemented her ration 
stamps by tokens to make up the odd amount, or received the appro¬ 
priate number of tokens in change. The tokens were freely circulable, 
the first and only true circulating medium in the rationing monetary 
system. 

The system accomplished several desirable results. The consumer 
had to add only stamps worth 10 points each, which was much simpler 
for her. As a consequence, the lines in stores moved much more 
rapidly. Second, the sorting problem was completely eliminated, and, 
because 10 is such a simple figure to work with, even counting was 
made slightly easier. 

Finally, and most important, a cut of well over half was made in 
the volume of stamps. Instead of 12 blue stamps per month, only 5, 
each worth 10 points, were needed. Instead of 16 red stamps, only 6 
were needed. Because both the trade and consumers adjusted readily 
to the use of tokens, the net result was a rationing system that was 
not onfy much less bulky and cumbersome, but far simpler as well. 

Determination of Quantity of Tokens Needed 

Before it was possible to enjoy the advantages of the token system, 
a number of major j)roblems had to be solved. Among the earliest 
of these was to estimate how many tokens would be needed. Both the 
matter of expense and the desire to avoid unnecessary use of critical 
materials pointed to the desirability of producing as few tokens as 
possible. At the same time, having too few when the program was 
launched might well prove disastrous. 


80 


A History of Ration Banking 

There were no ready guides for OP A to follow in making this de¬ 
termination. Assistance was sought at,the Bureau of the Mint, but 
the distinctions between the use of subsidiary coin and ration tokens 
were so great that comparisons were meaningless. The retail food 
trade was also approached for help. They were unable to separate 
the problem from their monetary change problem, in which they are 
always in the position of paying out much more than they receive. 
They felt they would be drawing tokens from banks consistently and 
paying them out to consumers, forgetting that consumers would be 
able to spend them only in food stores. 

The banks could give no real assistance, except to caution con¬ 
servatism in having plenty on hand. The OP A field organization felt 
similarly, dreading above all else the possibility that supplies might be 
exhausted. In the final analysis the decision had to be based in large 
part on guess and hunch. 

The major point of departure was the known fact that, although 
some 128,000,000 ration books were outstanding, there were only some 
40,000,000 family units and there was not likely to be more than one 
person marketing for any one unit at any one time. Since the number 
of tokens disbursed by a store would hinge on the number of customers 
rather than on the number of books, it followed that OPA could 
calculate that there were 40,000,000 potential token receivers. The 
“change,” that is, from a 67 point purchase would be the same as that 
from a seven point purchase regardless of the number of books 
involved. 

Another fact was also of significance. On all rationing expendi¬ 
tures, disregarding those cases where consumers gave up tokens^ the 
average number of tokens disbursed by stores would always be approxi¬ 
mately 4.5 in each program. 2 It was simple to predict, therefore, that 
the total number of tokens needed in each program to finance the first 
purchase of every shopper, assuming none were returned before every 
shopper made one purchase, was 4.5 times 40,000,000 or 180,000,000. 

Having come thus far on statistically solid ground, it was possible 
to estimate the reserves that would have to be provided for in OPA 
storage, in the banks and in retail stores, at least within reasonable 
limits. The major unknown, however, then injected itself, to wit: 
what would the housewife do with the tokens once she received them ? 
This unknown was so large and had such dangerous potentialities 
as to render almost meaningless any calculations such as the foregoing. 

There was no substantial reason why any housewife should hold 
more than nine tokens at any given time. It was not known, how¬ 
ever, how rationally she would act, or, stated in another and better 


2 If purchases were evenly distributed among the ending digits zero to nine, the average 
would be exactly 4.5. 



81 


The Ration Token Program 

way, how irrationally she would act, and almost any estimate was 
as good or bad as the next. If her preference between the two types 
of currency ran to stamps, the number of tokens required would be 
relatively few; if, on the other hand, she would tend to spend her 
stamps first and hold her tokens until her stamps were exhausted, 
the number of tokens used would be very large. 

An important factor bearing on this issue was whether the stamps 
would retain expiration dates or not. This question was all important 
during the period when the attempt was being made to determine the 
token requirements. The amount of conscious consumer hoarding of 
tokens would be considerably greater if the stamps expired periodi¬ 
cally, since the tokens would be “better” currency, in the sense that 
they would not suddenly lose their value, and would not have to be 
watched to assure that they were spent in time. 

On the assumption that stamp expiration dates would be eliminated, 
the decision was tentatively reached in the fall of 1943 to have 900,- 
000,000 tokens available for the beginning of the program, 55 per¬ 
cent of these to be red and 45 percent blue. From the foregoing com¬ 
ments it should be clear that this figure was little better than pure 
guesswork. Actually, it was the maximum number of tokens that 
could be made with the fiber that was available, so that the decision 
was really that such a quantity would permit the program to begin. 

The distribution between red and blue was also a guess. While the 
number of unspent blue stamps was greater than red, which led to the 
possibility of greater hoarding in that program, this factor was be¬ 
lieved more than overbalanced by the greater frequency of purchase 
and the lower average point value per purchase in the red program. 

The original estimate of 900,000,000 was placed in jeopardy by a 
program decision to retain expiration dates on stamps, at least until 
it was demonstrated that this procedure was unwise. There was reluc¬ 
tance to abandon expiration dates for fear there would be less control 
effected as unspent backlog increased, and this school of thought 
(which prevailed) held that expiration dates could be eliminated if 
it proved necessary after tokens were introduced. The opposite point 
of view was that Gresham’s law would operate to cause a great drain 
on the tokens which would force the abandonment of expiration dates 
under duress. This might lessen its effect because consumers would 
still feel that OP A might cancel stamps without notice but could not 
take such a step with tokens. 

The decision was made to retain expiration dates on stamps pro 
tern. As a result, and also becasue of fears in the field organization 
and elsewhere, the size of the tokens was reduced to permit more to 
be made from the same amount of material, and the quantity was 
increased to 2 billion, with the same percentage distribution between 


82 


A History of Ration Banking 

red and blue. Except for the fact that the smaller size was less con¬ 
venient to handle and created some problems in coin-operated devices, 
it was of course advantageous to have the additional supplies available. 
The figure removed all doubt as to sufficiency, and the unused tokens 
were available for use as replacements in subsequent months. 

The contract for 2 billion tokens was let in November of 1943, and 
ultimate delivery was completed on February 27, 1944, the date on 
which the token program was launched. During that period tokens 
were manufactured at an average rate of 20 million per day, reaching 
a peak of 50 million daily toward the end of the period. 

The Distribution of Tokens 

The distribution problem was simplified considerably by the adop¬ 
tion of a standard box and a standard carton. The tokens were 
machine counted into boxes holding 250 each. Twenty boxes were 
then packed in a carton, each carton therefore holding 5,000 tokens. 
Most of the tokens were shipped direct from the manufacturer, of 
which there was only one, to the banks, though some use was made of 
OPA’s eight distribution centers as supplementary distribution points. 
All shipments to banks were in full cartons, so that the minimum num¬ 
ber of tokens a bank could order was 5,000, and all dealings between 
banks and the trade were in full boxes, so that the minimum number 
of tokens a retailer could obtain was 250. While this meant that, on 
the average, every bank had to have 2,500 more tokens than it needed, 
and every retailer 125, it would have been utterly impossible to have 
made the distribution in loose tokens or odd amounts. 

The distribution problem of course, was to get the proper number 
of tokens into a half million stores, without getting so many as to 
exhaust the supply. Emphasis was placed on stocking each store 
with enough to last a full week, even if none returned. OPA felt 
that, if this was done, the stores could “get the feel” of the program 
by the end of that week and handle the problem themselves from 
there on. 

The retail stores were subject to two opposite forces. Their tradi¬ 
tional fear of running out of change led them to want a large supply 
of tokens “just to be sure.” On the other hand, they were required 
to pay ration currency to a bank in order to obtain tokens, which meant 
tying up ration currency that could otherwise be used to buy goods. 
This led them to want to limit their supply of tokens. 

OPA had to assist retailers in the solution of this problem. The 
best method would have been to tell the stores to multiply the number 
of sales they had in a week by 4.5 (the average number of tokens 
given as change in each transaction) and add 10 percent as reserve. 
This method was not chosen because very few stores knew how many 


83 


The Ration Token Program 

different sales they make in a given period of time, and even fewer 
knew how many such sales involved rationed commodities. 

On the other hand, the stores did know how many red and blue 
points they collected in a given week. OPA knew, from studies made 
in other connections, that the average rationing sale was between 20 
and 25 points. Since each sale would require five tokens on the average 
(rounding out 4.5), one token would be required for every five points 
spent in the store. The stores were accordingly instructed to have on 
hand tokens equal to one-fifth their weekly point income in each 
program. 

Another figure generally known was the allowable inventory. In 
processed foods it was three times the number of points collected by 
the store in March of 1943, in meat the number collected in two 
weeks in April of 1943. An alternative method was therefore sug¬ 
gested to retailers, namely, that 2 percent of the-blue allowable inven¬ 
tory and ten percent of the red allowable inventory would give the 
required number of blue and red tokens, respectively. Unless the 
character of a store’s operation had changed considerably, the results 
of each of these methods would be approximately the same. The 
stores were instructed to make these calculations, take the lowest, and 
add 25 percent as a reserve. 

The result was handed on a form to the bank at which the retailer 
expected to get his tokens. 3 This was done before January 8, 1944; 
no ration currency had to be surrendered at that time but it was made 
clear that this would be necessary when the tokens were available. 

It was assumed that the banks would be able to place their orders 
with OPA by totaling the orders they received from retailers. Actu¬ 
ally, the response from retailers was not great enough to enable them 
to do this and they had to make a good many estimates on their own. 

In an effort to save monev and to avoid an undue burden on many 

* 

banks, arrangements were made to ship tokens directly to the ware¬ 
houses of some of the larger chain retailers. Through the National 
Association of Food Chains, 47 of the largest chains, having 165 dif¬ 
ferent warehouses, participated in this direct shipment program. 
These 47 chains were sent 16,421 cartons of red tokens and 19,228 
cartons of blue tokens (a total of about 250,000,000 tokens), or about 
14 percent of all tokens shipped prior to the beginning of the program. 
The National Office collected ration checks from each of them for 
the tokens. Some tokens were saved in this process also, since most 
of the larger chains needed less tokens per 100 points of sales than 
the smaller independents because their typical sale was for a larger 
number of points. 

Bank orders were received during January and February, 1944. 
OPA felt that it should give some assistance to the banks as well as 


3 This form was printed and distributed by food trade associations. 



84 


A History of Ration Banking 

to the retailers and also that a system for screening bank requisitions 
would be necessary to assure that the token supply would not be 
exhausted. 

The first step was to divide all banks into two groups. The 4,000 
banks with total resources of less than $1,000,000 were informed that 
in all probability one carton of each color would fill their complete 
needs, that they would be forwarded those two cartons without requi¬ 
sition, and that unless they had reason to believe that 5,000 tokens of 
each color would be insufficient, they need do nothing at all except 
await receipt of the shipment. Very few of these banks requested 
more. 

For each of the other banks a card was made with OPA’s estimate 
of the number of red and blue tokens it would probably need. This 
figure was one carton of tokens for each 75,000 points on deposit in that 
bank. This ratio was obtained by dividing the total number of car¬ 
tons the retailer formula indicated would be distributed, by the total 
number of points on deposit in banks. This was rough, of course, but 
served as a basis for questioning a bank. Questioning was resorted 
to only when a requisition was more than fifty percent in excess of 
OPA’s figure. Actually, it was necessary to question only 2 or 3 
percent of the requisitions, and the procedure was adhered to less and 
less as time passed and it became apparent that there was no danger 
of exhausting the supply. 

By January 27, all but 1,330 participating banks had placed orders. 
These were queried on that date and 610 placed orders immediately 
thereafter. The balance had either been carried erroneously by OPA 
as participating banks or had been branches of a system that had 
ordered centrally. 

The distribution was handled from an OPA office in the manufac¬ 
turer’s plant in Cincinnati. At the peak of activity there were from 
45 to 50 employees of the Kailway Express in the office sending 17 
truckloads, or 50 million tokens, per day to banks the country over. 
All shipments were handled on a money basis for security reasons. 
On the day the program started, February 27, 1944, every requisition 
that had been received had also been filled. By that date, 740,305,000 
red tokens and 525,160,000 blue tokens had been sent to the banks. 
The program was able to get off to a good start with ample supplies 
of tokens throughout the country. 

Quantities of Tokens Used 

In the analysis of the outflow of tokens subsequent to the launching 
of the programs, two factors are of particular significance. The first 
was the stamp expiration date matter which has already been discussed 
and which placed a premium on the tokens. The second was that the 


The Ration Token Program 


85 


last series of brown meat stamps from War Ration Book II and of 
green processed foods stamps from War Ration Book IV, worth one, 
two, five, and eight points, remained valid until March 20. While 
these stamps remained in some ration books, the holders of such books 
rarely needed tokens. The demand for tokens was accordingly re¬ 
duced by the existence of these stamps. 

Token inventories in banks remained remarkably steady, and judg¬ 
ing by reports from retailers, no substantial inventories were being 
built up at that level. The tokens sent from the manufacturer to 
banks, therefore, may be taken as an indication of what was being 
withdrawn by consumers. These figures follow: 4 


The average number of cartons of tokens ordered per day by banks 


Week ending— 

Red 

Blue 

Week ending— 

Red 

Blue 

Mar. 4, 1944__ 

1,232 

1,097 

137 

Apr. 22, 1944 .. 

1.150 

817 

Mar. 11, 1944__ 

' 169 

Apr. 29, 1944___ 

(0 

669 

0) 

477 

Mar. 18, 1944_ 

653 

342 

May 6, 1944 ... _ 

Mar. 25, 1944__ 

2, 538 
2,104 
1,514 
1,067 

1,266 

1,276 

897 

May 13, 1944_ 

235 

219 

April 1, 1944.... 

May 20, 1944_____ - 

238 

233 

Apr. 8, 1944.__ 

May 27’, 194-4_ 

389 

266 

Apr. 15, 1944 _ 

764 

June 3. 1944_ __ .. 

192 

169 





i Not available. 


The low rate of withdrawal in the early part of March and the 
sudden increase in the week ending March 25 are accounted for by the 
continuing validity of the green and brown stamps until March 20. 
When the increase came it was such as to throw a genuine scare into 
OPA, creating the possibility of running out of tokens. At the peak, 
over 12^ million tokens daily were being withdrawn, and by the end 
of April a billion red tokens and three-quarters of a billion blues had 
been shipped. OPA had only 250,000,000 of each color remaining, 
which at the peak rate, was only 18 to 20 days supply. It required two 
months to manufacture more. 

The only possible step was to eliminate the expiration dates on the 
stamps, a step that was taken on April 4, 1944 5 6 with a commitment 
that .stamps would not be cancelled in the future without prior notice. 
This put the two types of currency on a par with one another and the 
token withdrawals subsided quickly. 

Token withdrawal remained low through the summer and in Sep¬ 
tember and October the blue tokens were withdrawn from circulation. 
This was done in anticipation of an early end to processed foods ra¬ 
tioning. When this did not occur, the program continued to operate 
with stamps worth 10 points each but without “change”, which was 
a substantial handicap. 

4 The table was compiled from the daily reports received from the token distribution 

center. 

6 Amendment 21 to Revised Ration Order 13, May 2, 1944, 9 F. R. 3708. Amendment 125 
to Ration Order 15, May 2, 1944. 9 F. R. 3708. 
































36 


A History of Ration Banking 

In September a number of items were removed from the red list 
and the demand for red tokens fell even more. The daily withdrawal 
was never in excess of 150 cartons and frequently well below this 
figure. 

On December 26, 1944, all outstanding meat stamps were suddenly 
invalidated and many meat items returned to the rationing list. 6 At 
the same time expiration dates were returned to the stamps, though 
in a modified form. Each month’s set henceforth would expire four 
months later. It was assumed that this device would kill off stamps 
that were not needed and avoid the building up of such a large back¬ 
log of unspent stamps, but would not put an appreciable premium 
on the tokens. 

The demand for tokens immediately shot upward. The essential 
cause was probably the unwillingness of the people to trust OPA’s 
assurance that no invalidation would ever be undertaken in the future 
without notice (a promise already made once and broken). During 
January of 1945, the withdrawal rate was very high, reaching 2,175 
cartons on one day. As the shock of the invalidation was dissipated, 
the rate declined, though it remained substantial at around 600 car¬ 
tons per day until summer when the end of meat rationing came into 
sight. 

During the life of the respective programs, about one billion blue 
tokens were sent to banks and about 1 % billion reds. In each case, 
the banks maintained an inventory of slightly over 200,000,000 tokens. 
The balance were issued to the trade. 

I 

Bank Procedures 

The introduction of ration tokens required a number of new proce¬ 
dures for the banks. Previously, all ration currency received by a 
bank was eventually either destroyed by it, forwarded to OPA for 
destruction, or, in the case of ration checks, cleared for debit. Tokens, 
however, were a circulating medium, like cash, and had to be held for 
disbursement after receipt. The new circulating medium also put 
the banks for the first time into contact with nondepositors who came 
to the banks to obtain tokens or to return them. 

The new procedures were carefully outlined in a 10-page instruc¬ 
tion entitled “The Ration Token Program.” 7 It has been pointed 
out that the banks requisitioned tokens from OPA in cartons of 5,000 
only. In turn, all their transactions with the trade were in full boxes 
of 250 only; they never had occasion to handle loose tokens. The 
boxes of tokens originally requisitioned from OPA were sealed with 
red or blue tape and were issued by the banks without breaking the 


6 Amendment 23 to revised ration order 16, December 26, 1944. 9 F. R. 15056. 

7 Supplement 3 to the Bank Operation Memorandum, Februthy 1, 1944. 



87 


The Ration Token Program 

seal. From the point of view of bank workload, this fact was of real 
significance. 

Tokens were issued to depositors in return for a ration check made 
payable to “tokens” in the proper amount. A nondepositor obtained 
tokens by presenting stamps, on a special gummed sheet holding 25 
stamps, each filled gummed sheet being redeemable for one box of 
tokens. The checks or gummed sheets received for tokens were 
handled by the bank as though they had been items in a deposit. 

There were occasions when a retailer would accumulate an excess 
supply of tokens. In such an event he was permitted to return them 
to the bank. If he was a depositor he merely deposited them to his 
account for credit using a regular deposit ticket. If he did not have 
an account, he exchanged them at a bank for the bank’s own ration 
check made payable to him in the proper amount. This check was 
very similar to a cashier’s check in commercial banking. For this 
purpose each bank was instructed to open a meat and a processed 
foods account in its own name on its own books. 

This feature of the plan was discussed at great length before being 
adopted; some bankers originally objected to it on the ground that it 
would place too much of a burden on the teller. It was quite true 
that the ration banking program had always attempted to keep the 
work away from the tellers and concentrate it in the proof and book¬ 
keeping departments. There seemed no logical alternative, however, 
and the new procedure was adopted, with some reassurances from the 
feeling that there woidd be only infrequent use of the privilege by 
the trade. 

The trade and the banks were instructed that all token transactions 
with banks had to take place in the standard container. Fmpty con¬ 
tainers were furnished the banks to be used as necessary. Each con¬ 
tainer had imprinted on it four endorsement spaces so that it could be 
used four times. Inside, each contained five slots, like a poker chip 
box, into which fifty tokens would fit. When filled, therefore, the box 
contained 250 tokens. The idea of using such a box, like many other 
features of the token plan, was suggested by the American Bankers 
Association committee. 

This automatic counting feature was actually not foolproof, by any 
means, since in the process of manufacture, the thickness of the tokens 
could not be held exactly true, so that there was some variation in 
thickness among tokens. This gave rise to a shortage problem which 
was a knotty one to solve. The boxes from the manufacturer were all 
machine counted, so that there was little chance of a shortage in the 
original boxes. When a box had been used a time or two. however, it 
was quite possible for a bank to receive it and reissue it to a retailer 
who claimed it contained less than 250 tokens. 


88 


A History of Ration Banking 

It was feared, during the planning stages, that this problem might 
become serious. The slotted box had been designed to make it unneces¬ 
sary for the banks to count the tokens individually, a task which, it was 
felt, would have been too costly and time consuming. They were in¬ 
structed that they were “not required to count the contents of boxes of 
tokens deposited or exchanged but should exercise reasonable diligence 
in accepting such boxes and should examine the contents to determine 
if all tokens are of a like color and fill each slot in the box properly.” * 8 

The solution reached for the shortage problem was evidently the 
proper one since no trouble ever developed. In the first place, it 
was decided that no shortage claims in sealed boxes received from the 
manufacturer would be allowed. Secondly, no shortage claims of less 
than six tokens in any one box would be allowed. Thirdly, when a 
shortage claim was made not in the two categories just mentioned, the 
bank was permitted to make up the shortage if it felt that the claim was 
bona fide, but was required to report to OPA’s district office the name 
of the claimant and the name of the last endorser on the box. It was 
presumed that this would permit OPA to ha've the name of any mer¬ 
chant persistenly shorting boxes or claiming shortages. These re¬ 
quirements and the low rate of circulation of token boxes made the 
shortage problem nonexistent in practice, since no case ever came to 
the attention of the National Office. 

The banks made use of a token ledger which was called a token con¬ 
trol sheet. Receipts and disbursements were recorded on this ledger 
and a running balance maintained, which of course controlled the 
physical inventory on hand. The proof sheet was also expanded to 
include a debit and a credit column for tokens, thus tying the token 
operations to the over-all ration banking transactions. 

From the point of view of the banks, as well as the trade, the token 
program was highly successful. One of its major purposes had been 
to reduce the amount of paper in circulation to manageable proportions. 
That this was accomplished can be seen from the fact that for the 
quarter ended December 31, 1943, the banks received for deposit 
20,000,000 items in the blue program and 41,000,000 in the red program. 
For the quarter ended September 30,1944, these figures were 8,600,000 
and 16,800,000, respectively. 9 While checks and certificates were in¬ 
cluded in the item figures, the reduction is almost exclusively attribut¬ 
able to the reduction in the amount of paper in circulation. 

Token activity was never large after the initial distribution. For 
the entire three months ending September 30, 1944, the average bank 
disbursed only 100 boxes and received 20, which means appreciably 

less than that number of transactions. The result, therefore, was a 

« 

8 Ibid., p. 3. 

9 From reimbursement claims submitted to OPA by the banks. 



89 


The Ration Token Program 

real reduction in the bank workload, which was, of course, only one of 
the many advantages brought by the tokens. 

Withdrawal of Ration Tokens 

Shortly before the ration tokens were issued, a sharp controversy 
developed between OP A on the one hand and the National Auto¬ 
matic Merchandising Association and the American Transit Asso¬ 
ciation on the other. The two associations were seriously alarmed 
over the possibility of widespread use of ration tokens in coin-operated 
machines. The merits of the controversy are not germane to this 
discussion, but one consequence was important. On May 16, 1944, the 
Price Administrator informed the House Committee on Banking and 
Currency in open hearings that OPA would withdraw ration tokens 
from circulation upon the termination of rationing. 10 It was felt that 
this would eliminate the real hazard of token misuse which could be 
expected to develop after the tokens no longer had a rationing value. 

To fulfill this commitment, the blue tokens were withdrawn during 
September and October of 1944. This was nearly a full year before 
the termination of processed foods rationing; in the fall of 1944, how¬ 
ever, all signs pointed to an imminent end of the program, and the 
withdrawal took place in anticipation of immediate termination. 

Public announcement was made early in September that blue 
tokens would become invalid for consumers on October 1. This had 
the effect of stimulating consumers to spend tokens, though the 
stimulus was weakened somewhat by the liberality of the ration at 
the time. The trade was informed at the same time that blue tokens 
would become invalid for them unless presented to a bank before Oc¬ 
tober 9, a date later extended to October 16. They were permitted to 
use envelopes for tokens where token boxes were not available, since 
the supply of regular token containers was insufficient to take care of 
the wholesale return of tokens. 

On September 9, the banks were given their instructions. 11 They 
were to stop disbursing tokens on September 16. On September 22 12 
they were told to ship blue tokens to the OPA warehouse by October 
31, 1944, though many made shipments after that date. They were 
also told that “At the time the final shipment is made, the ‘balance 
column’ should show ‘zero’ and the blue token control sheet may be 
considered closed, and transferred to a dormant file.” 

Concurrently, arrangements were made with a small number of 
large food chain organizations for direct return of tokens to OPA, 

io u. S. Congress, House of Representatives, 78th Cong., 2d sess., hearings before the 
Committee on Banking and Currency on H. R. 4376, vol. 2, May 16, 1944, p. 2009. 

» Supplement 20, Bank Operation Memorandum, September 9, 1944. 

u Supplement 21, Bank Operation Memorandum, September 22, 1944. 

741926—47-7 





90 


A History of Ration Banking 


by-passing the banks. Bation checks were issued them as the shipments 
were received. Arrangements were also made for the return of those 
few which had come into possession of the local boards. 

At this time OPA had forwarded 942,000,000 blue tokens to banks. 
At the end of the process of withdrawal, 450,000,000 had been returned, 
or something less than 50 percent. The major reason for the disap¬ 
pointingly small rate of return was the apparent approaching end of 
the program; under the circumstances, neither the consumers nor the 
trade made a real effort to avoid losing tokens after receiving notice 
of pending invalidation. 

Following the retirement of blue tokens, the trend of the war and 
the supply situation changed suddenly and rationing had to be con¬ 
tinued until August 1945. The value of blue stamps had to be retained 
at ten points each; the lack of the change-making tokens was keenly 
felt in the blue currency system. 

The red token retirement was even less successful and considerably 
less well managed. Because of the speed with which the war ended, 
it was not possible to retire the tokens before the program ended. 13 The 
revocation amendment, therefore, merely required the trade to turn 
in tokens to banks. No effort was made to recapture those in consumer 
hands. While many of the larger retail establishments complied with 
the requirement to return tokens, the recapture was not substantial, 
numbering about one-seventh of the 1 % billion shipped to banks during 
the program. 

The final chapter in the token program was written in April of 
1946, when all blue and red tokens were sold to the Government of 
Greece for use there in rationing. 

13 It is highly questionable that this could have been done anyway without endless con¬ 
fusion. Possibly a return to the old 8, 5, 2, and 1 denomination system could have been 
effected ; the use of separate stamps as 1-point change-makers was also considered. But 
these would have been ineffective devices in the decontrol atmosphere that prevailed imme¬ 
diately after V-J day. 



4 


CHAPTER IX 


Financial Reimbursement to Banks 

The services performed by the banks in the rationing programs 
were,paid for by the Government. Unlike most war purchases, how¬ 
ever, the attempt was made to fix the fees at a level which would cover, 
in the average bank, direct expenses only, with no allowance for heat, 
light, rent and other overhead expenses. Specifically, the reimburse¬ 
ment schedule was designed to cover the cost of direct labor, stationery, 
and other supplies, and depreciation of machines while in use on 
ration banking work. 

OPA felt that no more should be paid the banks for this wartime 
activity, and this position was readily agreed to by spokesmen for the 
banks. Each time a cost survey was made, therefore, the accountants 
were so instructed by OPA. The following paragraph sums up the 
accounting basis used in the first and subsequent surveys: 

In ascertaining the actual costs of the various banks we have included a proper 
proportion of each person’s salary covering the estimated time spent in the han¬ 
dling of the activity or accounts of the ration banking plan. We have also 
included a proportionate share of unemployment, old age benefits, group life, 
blanket bond and workmen’s compensation insurance, as they represent a part 
of the cost of holding the employee. In addition, we have included stationery 
actually used, postage expense where it was incurred, and a percentage of the 
maintenance and depreciation on adding and posting machines used in this work. 1 

When the reimbursement schedule was originally adopted in Jan¬ 
uary 1943, and when it was changed on three subsequent occasions, it 
was done by negotiation with a subcommittee of the American Bankers 
Association’s Ration Banking Committee. The rates, when agreed 
upon, were written into General Ration Order 3, a regulation with the 
force of law binding on all banks wishing to participate in the ration 
banking program. Intimate participation in the decisions regarding 
financial changes in the regulation was an important factor in giving 
the Association a sense of real responsibility in the program. It will 
be remembered that any bank was perfectly free to withdraw at any 

1 Driscoll, Millet and Co., “Report to the Office of Public Administration on Study of 
Costs of Operating Ration Banking in Albany, N. Y., Area.” December 29, 1942. 


91 




92 


A History of Ration Banking 

time it wished. The Association was in a position to render great 
assistance (and did so) in keeping participation at a peak. Since 
reimbursement was always extremely important to the banks, the Asso¬ 
ciation was able to do a much more effective job of keeping the banks 
in line since it took a real part in establishing the schedule. 

The Association group which negotiated for the banks was under 
obligation to take any tentative agreement reached to the full ration 
banking committee and certain of the Association officers for approval. 
Similarly, the OPA group had to obtain approval from its budget 
office before an agreement could become final. Actually, both these 
clearances were formal only; in no case was any agreement changed 
after the negotiations took place. 

Two other general points should be made. The bankers, of course, 
were interested in establishing generous rates, but they were sincerely 
anxious to avoid a level of rates which would offer any ground what¬ 
ever for a charge of profiteering. OPA was interested in keeping the 
rates as low as possible, knowing that the total sum was one which 
might well attract a Congressional investigation and being anxious to 
establish a reputation for economical operation, but they were aware 
that if the fees were too low they would lose participating banks. This 
the program could ill afford. These forces acting on the two parties 
tended to narrow the area of disagreement, though it was still sub¬ 
stantial on occasion. 

Finally, both sides were anxious to make the fees appear generally 
sound, and the accountants’ recommendations were usually followed. 
Nevertheless, both had a healthy skepticism of bank cost accounting, 
and both were more interested in the welfare of the small banks than 
the large. The reason for this was that there were many more small 
banks, and there was no danger that the large banks would withdraw 
from the system. 

The First Reimbursement Schedule 

It will be recalled that the banks in New York State had carried 
out the experiment in ration banking without remuneration. During 
the experiment, OPA engaged a firm of bank cost accountants to study 
the operation and to recommend, first, a basis on which reimbursement 
could be made, and second, the amount of reimbursement that should 
be paid. This firm submitted a report with recommendations on 
December 29, 1942, and the following day OPA and the bankers’ com¬ 
mittee convened to consider this report and reach agreement. 

OPA had hoped that in the interests of simplicity, it would be pos¬ 
sible to pay a fixed fee for each account a bank had, thereby working 
rough but simple justice. The report demonstrated, however, that 
there was no similarity in terms of cost between a gasoline and a sugar 


Financial Reimburse?nent to Banks 


93 


account. Gasoline had almost no check activity but very heavy but 
infrequent deposits. Sugar activity was more frequent and moderate. 
Actually the cost of the average sugar account was computed at $0.34 
per month; 2 of the average gasoline account, $9.90. 

On the other hand, a deposit slip cost the same to process and credit 
regardless of program, and a check was handled identically in each 
program. It appeared sound, therefore, to base the reimbursement on 
activity, and the accountants so recommended. 

The cost study was made in 15 of the 18 banks in the experimental 
area. Essentially, it was a time study, so far as the labor cost was 
concerned. In each bank, it was determined how many credits were 
posted in an hour, and this figure was then translated into a cost per 
credit entry by dividing it into an hourly wage. The resultant figure 
differed significantly from bank to bank, and the fees recommended 
were based on computed medians. 

As a result of the New York studies, the accountants recommended 
the establishment of the following schedule of fees: 


For opening each account_$0. 33 

For each deposit_ . 05 

For each item included in the deposit 1 _ . 0064 

For each check paid- . 046 

Maintenance per account per month- . 10 


1 An item was defined as a check, a certificate, or a gummed sheet. 

These figures were represented by the accountants as being actual 
cost of operation, and the adoption of the recommendation, according 
to them, would have covered the costs of the average bank. Inci¬ 
dentally, the wage figures used were average wages for the type of 
employee studies rather than the wage of a particular employee. 

But OPA felt that some changes had been made in the program 
since the study had been completed which warranted somewhat lower 
fees, though any precise measurement of their effect was impossible. 
Among these, the following were considered to be the most important: 

1. The need for checking serial numbers on checks and of obtaining 
“missing voucher statements” from depositors was eliminated, and the 
entire clearance system was very much simplified. 

2. The examination of checks for expiration dates was eliminated. 

3. Statements were to be prepared quarterly instead of monthly. 

4. OPA reports were to be prepared mdnthly instead of semimonthly. 

In addition, it was felt that the banks would be able to handle the 

program more efficiently under instructions contained in the well- 
organized Manual of Operating Procedure than under the experi¬ 
mental conditions of trial and error. 

2 That is, the total cost incurred for a month by all banks for all sugar accounts divided 
by the number of sugar accounts. 








94 A History of Ration Ranking 

After considerable discussion, agreement was reached on the 


following schedule of reimbursement: 3 

For opening an account_$0. 30 

For opening an additional account in the same name- . 05 

For each deposit_ . 05 

For each item included in the deposit_ . 005 

For each check paid_ ■ 04 

For each account maintained, per month_-_ . 10 


It was agreed that the cost data gathered during the experiment 
might prove to be unrepresentative, and that each side, therefore, 
should have the right to ask for a new schedule at any future date. 

The report and recommendations of the accountants drew no dis¬ 
tinction between the cost of opening one account by one individual 
and of opening subsequent accounts by the same individual. Since 
only gasoline and sugar were included in the experiment, there were 
very few instances in which more than one account was opened by 
one individual. Later, however, this could be expected to occur 
frequently, since at least four food-rationing programs were in 
prospect. 

The report had shown that of the $0.33 attributed to the cost of 
opening an account, $0.25 was allocated to the time required by a bank 
employee to explain the system to the prospective depositor, a cost that 
would not recur when the same individual opened his next account. 
Hence the differentiation between first and subsequent accounts. 

It will be noted that the maintenance and deposit charges followed 
the cost recommendations, whereas the other items were all low T er in 
the final agreement. These reductions were an attempt to reflect the 
procedural changes, mentioned previously, which tended to reduce the 
costs of operation. The schedule approximated fairly closely the ac¬ 
countant's recommendations, though it should be pointed out that the 
difference between $0,064 and $0.05 in the deposit charge and between 
$0,046 and $0.04 in the check charge represented substantial sums 
in the annual OPA budget. 

Thus were the first reimbursement rates established. Only gaso¬ 
line, sugar, and coffee were covered originally. One decided ad¬ 
vantage of the sort of schedule agreed upon was that it was unneces¬ 
sary to alter it in any way as new programs were added; each fit into 
the existing reimbursement structure. 

The Renegotiation in August 1943 

The original reimbursement schedule was first announced to the 
banks by inclusion in the Manual of Operating Procedure which was 
released about January 20, 1943. There was very little reaction from 
them at first as to its fairness, unquestionably because it was fairly 


3 General Ration Order 3, section 1305.411 (c), 8 F. R. 865. 









Financial Reimbursement to Banks 


95 


complicated and because so little was known about the activity that 
would develop. 

Reimbursement was first made shortly after March 31, 1943, cover¬ 
ing the short quarter from the beginning of the program to that date. 
This occurrence, with the calculations many banks made as the program 
developed, created an adverse bank reaction as to the schedule’s equity, 
and both OPA and the Association received more and more repre¬ 
sentations that it was unduly low. 4 

While there was no formal request made that the schedule be revised 
upward, the subject was discussed many times during the spring of 
1943 and there came to be a tacit understanding between OPA and 
the Association that action should be taken. On April 30, the Associ¬ 
ation informed the banks that “In our conferences on this subject 
there has been complete agreement by OPA that reimbursement as 
now being paid does not meet actual costs and should be adjusted be¬ 
ginning with the next period, July 1.” 4 On May 25, OPA assured 
the banks that “arrangements to review the ration banking reim¬ 
bursement schedule are now being made.” 5 

While the early figures were not particularly reliable, because of 
late and uncertain bank reporting and because new programs were 
being added so rapidly, OPA estimated that it was reimbursing the 
banks at an annual rate of $10,400,000 by midsummer of 1943. Since 
this was a substantial portion of OPA’s total budget, there was no 
desire to raise it. On the other hand, the agreement with the spokes¬ 
men for the banks contemplated that the rates would be kept at a 
level which returned direct expenses to the average bank. 

Accordingly, it was determined that another cost survey should be 
made in order to ascertain whether the current fees were in fact too 
low. During April of 1943 the services of the accountants who had 
made the original cost survey in New York State were engaged again 
and a new survey was made in May by them. 

It was possible, in the course of the new survey, to obtain a more rep¬ 
resentative group of banks, particularly in a geographic sense. 
Actually 29 banks were surveyed, and these were located as far west 
as Chicago and as far south as Georgia. They were divided into size 
groups, according to total resources, as follows: 6 

Number of banks : Total resources 

7_$2, 500, 000 and under. 

7_ 2,500,001 to 7,500,000. 

6_,_ 7,500,001 to 15,000,000. 

4 _____ 15,000,001 to 50,000,000. 

5 _ 50, 000, 001 and over. 

* Bulletin No. 4, “Ration Banking, a report to tlie banks by the Ration Banking Commit¬ 

tee of the American Bankers Association.” April 30, 1943. 

6 Information Memorandum No. 7, May 25, 1943. 

e Driscoll, Millet & Co., “Survey of Ration Banking Costs for the Month of May 1943.” 
July 15, 1943. (A report to the Office of Price Administration.) 








96 


A History of Ration Banking 

The survey demonstrated what income each group received from 
OPA during the month of May, and what its expenses were for the 
same period, expense being defined in the same way as in the earlier 
survey. The result showed that the 29 banks had an aggregate income 
of $8,259.25, expenses of $9,930.79. They needed, therefore, an in¬ 
crease of 20.2 percent to reach the break-even point. But within the 
various size groups, great differences were apparent. The smallest 
banks needed a 66.5 percent increase, the largest 43.2 percent, whereas 
the three middle groups were very close to the break-even point. 
Apparently the small banks were having difficulty because activity 
in their accounts was comparatively low, and because they were unable 
to work out an adequate division of labor; frequently the work was 
handled by a junior officer in his spare time. As for the large banks, 
they seemed to have trouble with the large wholesale deposits, many 
of which had to be returned for correction, and of course they cus¬ 
tomarily used more elaborate internal control systems. 

At any rate the survey demonstrated that certain revisions were 
called for. The report was submitted to OPA on Juty 15, 1943; 
while it was being made the American Bankers Association was con¬ 
ducting a questionnaire survey of over 700 banks. While these data 
were not subject to precise tabulation, they tended to bear out the 
conclusions of the OPA survey, though they showed generally higher 
indicated costs. On August 16, 1943, OPA and ABA met to nego¬ 
tiate a new schedule, after all the data had been carefully studied by 
both groups. Greatest reliance was placed on the OPA survey. The 
existing fees and the accountants’ recommendations are shown 
below: 

Current fee Recommendation 


For opening the first account_$0. 30 $0. 62 

For opening a subsequent account_ .05 .18 

For each deposit_ . 05 .045 

For each item in the deposit_ . 005 . 01 

For each check paid_ .04 .03 

For each account maintained per mo_ .10 .09 


At the meeting immediate agreement was reached that the deposit- 
cost should remain at $0.05 and that the item cost should be increased 
from $0,005 to $0.01. After some discussion agreement was also 
reached at $0.60 and $0.20 for opening first and subsequent accounts, 
respectively. No great importance was attached to these latter fees 
since most accounts were already opened. 

ABA suggested a substantial increase in the maintenance charge, 
since responses to their questionnaire study indicated that most banks 
felt strongly that this particular fee was quite low. OPA refused 
to yield on this point, however, in view of its cost survey. (It should 
be remembered that this survey was conducted by a highly reputable 








Financial Reimbursement to Banks 


97 


private firm, well thought of by banks, whose motives could not be 
suspect.) The maintenance fee, therefore, remained at $0.10 per 
month. 

The greatest amount of discussion revolved around the check fee. 
OPA was anxious to reduce this from $0.04 to $0.03, not only to save 
money but to show that reductions as well as increases would be made 
where indicated. ABA argued strenuously against such a move, 
partly on the ground that it would be dangerous to the program in 
view of the rather antagonistic feeling of the banks stemming from 
the verification struggle. A more telling argument, however, was the 
demonstration from OPA’s own figures that whereas $0.03 might be 
the indicated check cost for all the banks in the survey on the average, 
such a fee would in fact place the small banks in the red almost with¬ 
out exception. With this fact established, OPA yielded and agreed 
to allow the figure to remain at $0.04. 

An important new fee was added at this negotiation. The cost 
accountants had recommended a “reports and regulations” charge, 
presumably to reimburse each bank for the work involved in sub¬ 
mitting reports to OPA and keeping abreast of OPA instructions 
which came to banks in substantial volume. Actually, this fee seemed 
to be the only wav that reimbursement to smaller banks could be 
raised sufficiently without giving an unwarranted income to the larger 
banks. The reports and regulations charge came to be the largest 
single element in the schedule for the small bank, but was almost in¬ 
significant to the large bank, since it was a flat sum given to each bank 
regardless of size. 

The cost survey had indicated a reports and regulations charge 
varying from $13.24 per month for the smallest group to $40.82 for the 
largest. Agreement was reached at $20 per month, and this new fee 
was incorporated in the reimbursement schedule. 

This fee created a problem which, while not particularly serious, 
was never really solved. In many States branch banking is prohibited, 
in others it is confined to city or county limits, and in still others it is 
permitted on a State-wide basis. At the time of these negotiations the 
largest branch system had just under 500 branches throughout Cali¬ 
fornia, while another bank in Chicago had about the same total re¬ 
sources with no branches. And in New York City a bank of about 
the same size had nearly 100 branches, all located within the city limits. 
It would be patently unfair to grant $20 per month to the main office 
and to each branch in each of those cases. 

The suggestion w 7 as made that the fee be paid to each of the branches 
when the branches submitted reports directly to OPA, but not when 
the report for the system came through the main office. Aside from 
the difficulties of administering such a provision, it was not considered 


98 


A History of Ration Banking 

theoretically fair to do so. To illustrate, of two branch systems in 
New York City, one used its branches as teller windows only in ration 
banking. Deposits were accepted at the branch but all items were then 
sent to the main office where the proving and posting were done. The 
other had its branches act as independent banks for ration banking, 
maintaining ledgers in each branch for depositors who banked there. 

In the one case all reports were made centrally, in the other from 
each individual branch. But each had made its decision on how to 
operate in its own best interest at a time when there was no reports ancl 
regulations charge. To have given this charge to all the branches of 
one system and to none of the branches of the other could have had 
no defense. 

The ultimate solution to the problem was a rough approximation 
of justice. The fee had been recommended as a device to implement the 
income of small banks. On the assumption that small banks do not 
generally have many branches it was decided to pay the fee to only 
the main office and a maximum of four branches. A bank with more 
than four branches would receive no more than $100 per month as its 
reports and regulations charge. The figure four was of course com¬ 
pletely arbitrary; as much or as little justification could have been 
advanced for two or seven. But it was simple and. with some excep¬ 
tions to be noted later, it did not create many problems. 

One final fee was written into the reimbursement schedule at this 
time. In June the banks had been instructed to verify the contents of 
3 percent of the stamp envelopes deposited with them and had been 
told that OP A would reimburse them for this work. OPA’s cost sur¬ 
vey had been made for a period when banks were not verifying, but the 
accountants collected some data which was submitted as a separate 
report. 7 The data was qualified with the statement that “we do not 
think that the figures are conclusive.” Their studies showed that the 
average time per envelope varied from 1.7 minutes to 18 minutes, and 
they were reluctant to ascribe significance to an average of any sort. 

They pointed to another experience which had made them reluctant 
to make any recommendation. In one of the New York City banks it 
took a teller 17 minutes, the assistant manager of the department 19 
minutes, and a representative of the New York OP A office 23 minutes 
to verify an envelope containing 350 stamps. The best they could 
offer was that the fee should probably be between $0.14 and $0.25 per 
envelope. Both sides recognized that the function would not last 
long and that there would be no way of reaching a truly scientific 
figure. No great importance, therefore, was attached to the fee by 
either side. As a matter of fact the report of the conference shows 

7 Driscoll, Millet & Co., “Data on 3 Percent Envelope Verification,” August 13; 1943. 
(A report to the Office of Price Administration.) 



Financial Reimbursement to Banks 99 

\ 

that OPA originally proposed $0,25 per envelope, ABA proposed the 
same figure, and agreement was reached at $0.20.* 

The announcement to the banks of the new rates was made by OPA 
on September 3. 9 OPA stated that the rates “would allow the average 
bank to break even. . . .” At the same time, ABA announced the 
change to the banks stating that “the Committee believes that this 
schedule is equitable both to the Government and the banks.” 10 

The effect on the OPA budget was substantial. The new reports and 
regulations charge added $2,880,000 to the annual cost, and the new 
verification fee $1,800,000 (this fee, however, was in effect less than a 
year). The deposit charge for the quarter ending September 30,1943, 
was at an annual rate of $4,250,000 whereas under the old rate it would 
have been half that. It may be remarked parenthetically that had the 
check charge been lowered from $0.04 to $0.03, the annual saving would 
have been $1,115,000, for there was that much difference in that single 
penny. The increase in the charges for opening accounts may be 
ignored since the'result was insignificant. 

All of the changes were made retroactive to July 1 except the verifi¬ 
cation fee which was made effective on September 1 since prior to that 
date banks had no occasion to keep records of the number of envelopes 
verified. * 11 The first full quarter when the new schedule was in effect, 
therefore, was the last quarter of 1943. In that quarter OPA reim¬ 
bursed the banks a total of $4,177,140 (13,160 invoices). This figure 
under the original rates would have been $2,493,690, or 40 percent less. 

The new reimbursement remained in effect for eighteen months. It 
was generally well received by the banks, with the exception of some 
of the branch systems which felt they were being discriminated against 
in the four-branch limitation. OPA was generally satisfied with the 
new schedule, although the feeling persisted that the check fee should 
have been reduced a penny. It was also true that, as the program wore 
on and was simplified somewhat, and as the banks became more 
efficient, costs began to decline while the fees of course held steady, It 
was these factors which led eventually to a reopening of the entire 
matter and an eventual lowering of the schedule. 

Reimbursement for Ration Tokens 

It will be recalled that ration tokens were put into circulation on 
February 27, 1944, and that with them came certain new functions for 
the banks. It was decided at an early date that an ex ante determina¬ 
tion of fees for these functions would be unwise. It appeared more 
sensible to wait until there had been some experience under the pro- 

8 Memorandum, L. J. Kroeger to Chester Bowles, August 26, 1943. 

9 Manual Memorandum No. 8, September 3, 1943. 

10 American Bankers Association, Ration Banking, Bulletin No. 6. September 3, 1943. 

11 Amendment 4 to General Ration Order 3, September 17, 1943. 8 F. R. 12611. 



100 A History of Ration Banking 

gram and then to establish the rates, making them retroactive to 
February 27. 

When the plan was officially announced to the banks 12 this point 
was made clear. At that time the banks were asked to keep records 
of the number of transactions in which tokens were involved, that is, 
the number of times tokens (regardless of quantity) were deposited or 
withdrawn. This was done because it was not knqwn at the time 
whether reimbursement would be on a transaction basis or on a box 
basis. Information on the number of boxes withdrawn and deposited 
would be readily available from the token control sheet so that no 
additional record would be necessary in the event that reimburse¬ 
ment should be based on the number of boxes issued and received. 

In terms of agreeing on the reimbursement for tokens the most sig¬ 
nificant development in the weeks following the istallation of the 
plan was the extremety light activity. After the tokens had been 
initially issued, they did not return to the banks in volume. This 
merely meant that regardless of what fees were agreed upon, not much 
money would be involved. The parties to the negotiation, therefore, 
were more than usually willing to compromise. 

OPA met with the American Bankers Association on April 20, 1944 
to negotiate the token reimbursement schedule. Three new transac¬ 
tions were involved: the issuance of token boxes, the receipt of token 
boxes either as deposits or in return for a ration check, and the issuance 
of the bank’s ration check drawn on its own account, the last being 
very similar to a cashier’s check. 

OPA leaned toward establishing the fees for disbursement of tokens 
on a transactions basis, on the ground that it cost no more for a bank to 
issue 5,000 tokens against a depositor’s check, for example, than 250. 
As a matter of fact, many of the larger banks issued tokens to larger 
depositors in unbroken cartons (holding 20 boxes or 5,000 tokens). 
This position was abandoned in the interests of administrative sim¬ 
plicity, since the data on the number of boxes handled was available 
from records already kept, and it would have been necessary to estab¬ 
lish and maintain a new set of records to know the number of 
transactions that took place involving tokens. 

The ABA, having won that point, proposed a fee of $0.02 for each 
box disbursed, and $0.02 for each box received. These figures came 
from a mail survey made by ABA of a number of banks. OPA had 
made no cost survey but had discussed the matter with accountants, 
and felt that $0.01 per box would be adequate. Admittedly, this con¬ 
tention was based less on scientific cost analysis than any other posi¬ 
tion OPA ever took in a reimbursement negotiation. This again was 


11 Supplement 3, Bank Operation Memorandum, February 1, 1944. 



Financial Reimbursement to Banks 


101 


because of the realization that the total amount of money involved 
would not be large regardless of the rates established. 

Compromise was reached on $0.02 for each box received by the bank 
and $0,005 for each box disbursed. This was viewed as acceptable 
by OP A because of the conviction that far more tokens would be dis¬ 
bursed than received. Actually, this conviction turned out to be cor¬ 
rect; about eight tokens were disbursed by banks for every one re¬ 
ceived. Incidentally, receipts of tokens from OPA were not to be 
reimbursed. 

This agreement left only the bank’s ration check to be paid for. 
Here again activity was very light and experience lacking. On the 
basis of the discussion with accountants, OPA felt that $0.07 would 
be a fair figure, this to be in addition to the customary $0.04 for debit¬ 
ing the check. The figure agreed upon was $0.05, another indication 
of the comparative indifference of the bankers committee. 

The token fees were made retroactive to the beginning of the pro¬ 
gram. 13 On January 1, 1945, they were discontinued completely be¬ 
cause they were of such minor importance and because their elimina¬ 
tion greatly simplified the quarterly application for reimbursement 
by the banks. 14 Between February 27 and December 31, 1944, OPA 
paid a total of $92,971.09 to the 15,000 banks for their part in the 
token program. In retrospect this sum appears extremely small in 
the light of the key part played by the banks in the distribution and 
circulation of more than 2 billion tokens. Of the total sum, 44 percent 
was for disbursing tokens, 28 percent for receiving them, and 28 per¬ 
cent for checks written on banks’ own accounts. 

Reimbursement Reduction, October 1944 

The most difficult of all the reimbursement negotiations was the final 
one, taking place in October 1944, and becoming effective on January 1, 
1945. It resulted in a substantial reduction in the total amount paid 

to banks. 

During the first half of 1944 a number of changes were introduced 
in the ration banking program which tended to simplify the banks’ 
operations. Chief among these were felimination of expiiation dates 
on most deposited items and the establishment of the verification 

centers. 

Before the verification centers became operative, many banks had 
experienced difficulty in destroying ration currency. Oidinaiily they 
did not receive enough volume to make it feasible to have the paper 
commercially reclaimed; in consequence, they had to evolve some ar¬ 
ia Amendment 6 to General Ration Order 3, May 22, 1944. 9 F. R. o4-6. 

Amendment 11 to General Ration Order 3, December 19, 1944. 9 F. R. 14674. 



102 


A History of Ration banking 

rangement for destroying it and the only safe way was by burning. 
Even where a bank had a coal-burning furnace the task was not easy, 
for gummed sheets in particular burned extremely slowly and had to 
be watched until completely consumed. The bank with an oil furnace 
had to make some other, usually time-consuming, arrangement. 

The destruction expense was included in the per item fee in the 
reimbursement schedule. With the establishment of the verification 
centers, this cost disappeared, for it was then necessary only to wrap 
the items, affix a postage-free label and mail. For most banks this pro¬ 
cedure was a great deal more convenient and less expensive. 

Expiration dates on most stamps, it will be recalled, had been elimi¬ 
nated shortly after the institution of ration tokens early in 1944. The 
significance of this action lay in the fact that checking items for 
validity dates had been one of the most important elements in the 
proof cost. In addition, expiration dates on shoe and food certifi¬ 
cates were eliminated on April 15,1944; 15 this action was if anything 
a greater contribution to ease of operation than the action with re¬ 
spect to stamps. 

In addition to these developments, conversations with individual 
bankers led to the belief that costs of operation had declined to a 
point where the average bank was receiving reimbursement substan¬ 
tially in excess of its out-of-pocket costs. OPA determined, there¬ 
fore, to reopen the matter of reimbursement with a view to a possible 
reduction in the fees. On July 5, 1944, OPA gave formal notification 
to the American Bankers Association group that it felt a review to 
be in order. The notification stated that “We feel that actual ex¬ 
perience has shown many banks to be receiving excessive income from 
the ration banking service and that the present schedule of fees gen¬ 
erally violates the original understanding between us, namely, that 
the reimbursement paid by the OPA should cover operating costs but 
not yield a profit.” 16 

The Chairman of the Association’s committee acknowledged this 
letter on July 12, stating that “We shall be glad to reexamine the pres¬ 
ent schedule of reimbursement fees. . . .”, though adding the state¬ 
ment that “We rather doubt that many banks are receiving excessive 
income from ration banking services but, nevertheless, are most anx¬ 
ious to maintain the fee schedule on a basis in keeping with the origi¬ 
nal understanding. 17 

18 Amendment 9 to Revised Ration Order 3, April 15, 1944. 9 F.. R. 3944. Amendment 
24 to Revised Ration Order 13, April 15, 1944. 9 F. R. 3944. Amendment 127 to Ration 

Order 16, April 15, 1944. 9 F. R. 3944. Amendment 57 to Ration Order 17, April 15, 

1944. 9 F. R. 3944. 

18 Letter, Louis J. Ivroeger to Wilbur Lawson, July 5, 1944. 

17 Letter, Wilbur Lawson to Louis J. Kroeger, July 12, 1944. 



Financial Reimbursement to Banks 


103 


The reply asked for time to frame a questionnaire on cost experience 
to be sent to about 200 banks, and also requested that the conference be 
postponed until after September 24, on which date the annual con¬ 
vention of the association would be held, at which all members of the 
ration banking committee would be present. This was agreed to with 
the understanding that any changes made would become effective on 
October 1, which w^as the beginning of an OPA fiscal quarter. 

OPA immediately began a rather extensive cost survey in 31 banks 
in all parts of the country. These surveys were made during August 
and September, which, it may be noted, was just after the verification 
centers became operative. Several of the banks surveyed in the 1943 
survey were resurveyed. The banks were grouped according to the 
following size groups: 


Number of banks: 

7 _ 

8 _ 

8 _ 

8 _ 


Total resources 
..$3,000,000 and under. 

. 3,000,001 to 12,000,000. 

. 12,000,001 to 50,000,000. 
, 50,000,001 and over. 


The techniques in the previous surveys were again followed. 

The report was submitted on October 6, 1944. 18 It can be summar¬ 
ized most easily by a tabular presentation of the then current fees, the 
cost as found in the survey and the accountants’ recommendation, as 
follows: 


Item 

Current 

fee 

Cost 

Recom¬ 

mended 

fee 

Deposit ___ 

$0. 05 

$0.038 

$0.04 
.005 

Deposited item . _ . __ 

.01 

.001 

Checks paid _ _____ __ 

.04 

.029 

.03 

Maintenance per account____ . _ ____ 

. 10 

.073 

.08 

Reports and regulations_ _ __ 

20. 00 

8.36 

10. 00 

New accounts opened _______ 

.60 

.33 

.35 

Additional accounts opened_____.__ . . 

.20 

.13 

. 15 

Boxes of tokens disbursed.__... . . ___ . 

.005 

.015 

.02 

Rexes nf tokens received _ _ 

.02 

.011 

.01 



It will be noted that in each case except one (boxes of tokens dis¬ 
bursed) the recommended fee was less than the current fee. 

This study was made freely available to ABA. They had also a 
tabulation of 159 of the 200 questionnaires which had been distributed 
during August. 19 Most of these replies were based on estimates of 
cost, though some were presumably based on actual costs. Of the 

13 Memorandum, Percy Hanson, associate chief accountant, to Louis J. Kroeger, Director, 
Ration Currency Control Division, “Survey of Operating Costs of Ration Banking,” Octo¬ 
ber G, 1944. 

19 American Bankers Association, “Recapitulation of ABA Ration Banking Questionnaire,” 
August 1944. (A typewritten tabulation.) 

























104 


A History of Ration Banking 


usable replies, 42 percent of the banks reported a profit, 58 percent a 
loss under the schedule then in effect. Each size group except that 
with more than 200 accounts estimated expense to be in excess of in¬ 
come. It is interesting to note, however, that when the banks were 
asked what the fee should be for each activity, the most common recom¬ 
mendation in almost every case was the existing fee. OPA was not 
inclined to place much reliance on these data. 

On October 9 the two groups convened, presumably to renegotiate 
the schedule. OPA opened the meeting by proposing certain reduc¬ 
tions in fees, the most important of which were cutting the check fee 
from $0.04 to $0.03, the item fee from $0.01 to $0,005, the maintenance 
fee from $0.10 to $0.08, and the reports and regulations fee from $20 
to $12. ABA countered with some suggestions for raising the schedule 
rather than lowering it, the specifics of which are unimportant here. 

The two groups were so far apart that no progress whatever could 
be made, and it rapidly developed that ABA’s real position was that 
no change either way should be made in the schedule. It will be re¬ 
called that at this time the American Army was rushing across France 
and a spirit of optimism pervaded the Nation. ABA took the position 
that the end of rationing appeared imminent and that the time was 
therefore hardly ripe for any change. OPA was unable to subscribe 
to this position, insisting that cost of operation was the only pertinent 
factor, and that bank relations and the war’s end w T ere irrelevant. 
ABA, finally convinced that OPA meant to go ahead with the reduc¬ 
tion, asked for a recess of several days, during which they could receive 
new instructions from the Association officers. 

On October 18 the two groups reconvened. The Association had 
meanwhile decided to proceed with the negotiations though they argued 
forcefully and logically that the effective date of any changes made 
should be January 1, 1945, rather than October 1, 1944. This argu¬ 
ment was based essentially on the fact that the Sixth War Loan drive 
was just getting under way. Since the banks played a major part 
in any loan drive, it would be extremely unfortunate if a reduction 
in ration banking fees should have the effect of causing many banks ta 
participate less enthusiastically in the drive. This argument was par¬ 
ticularly cogent in view of the tendency of bankers, like other people,, 
to view the Government as a unit; the fact that the Treasury Depart¬ 
ment administered the bond drive while OPA administered ration 
banking would be of no significance to them. It was agreed at the 
outset, therefore, that ABA should be released from its commitments 
to back-date.tlie new schedule, and that no publicity would be released 
on it until the Sixth War Loan drive had been completed. 

The negotiations proceeded in the customary fashion, after these 
preliminaries had finally been disposed of, with the one difference that 


Financial Reimbursement to Banks 


105 


ABA was more prone than usual to bring in the matter of bank re¬ 
lations. They were genuinely alarmed that a substantial reduction 
in reimbursement would cause wholesale withdrawals from the system, 
and argued that efery doubtful question should be resolved in favor 
of not reducing the schedule. This consideration of course was not 
unimportant; it affected OPA to some extent as well and always kept 
the negotiations from being purely scientific. 

As a result of a day’s discussion and negotiation, agreement was 
reached on the following new schedule: 20 


For each deposit_$0. 04 

For each item in the deposit_ . 0075 

For each check paid__ . 03 

Maintenance, per account, per month_ .10 

Reports and regulations, per program carried, per month_ 1 3. 00 


1 This fee was limited to five banking offices in any branch system in any given city. 

This schedule calls for some comment. The original OPA proposal 
called for a deposit fee of $0.05 and a maintenance fee of $0.08. The 
agreement at $0.04 and $0.10 respectively was reached because both 
sets of figures would cost OPA the same amount of money, but the 
latter set was more beneficial to the small banks than the former. 

The reduction in the fee for checks paid was argued more strenu¬ 
ously than any other point. OPA insisted that this change be made 
this time and ABA ultimately conceded. The only real concession 
made by OPA during this negotiation was in the item fee. The 
original proposal of $0,005 had been countered with one of $0.01. 
With the other changes already agreed to, ABA was finally able to 
demonstrate that $0,005 would put more than half of OPA’s surveyed 
banks in a loss position; hence the compromise was agreed to at $0.0075. 
Incidentally, the annual cost to OPA of the quarter of a cent was 
$800,000. 

Before turning to the reports and regulations charge a word may 
be said about the five items that were completely eliminated. These 
items were the opening of new accounts and of subsequent accounts, 
boxes of tokens disbursed and received, and ration checks issued on 
the bank’s own account. Before the discussions opened there had been 
no thought of eliminating these items. During the course of the dis¬ 
cussions, however, someone pointed out that of the $3,080,944.91 
claimed by the banks for the quarter ending September 30, 1944, only 
$64,992.77 was accounted for by those five items. In other words 
half of the ten items of reimbursement were accounting for only 2.1 
percent of the money paid out. It was quickly agreed that the 
schedule was not nearly scientific enough to warrant the retention 

20 Amendment 11 to General Ration Older 3, December 19, 1944. 9 F. R. 14674. 


741926—47 


8 










106 


A History of Ration Banking 

of these five items amounting to so little and they were forthwith 
abandoned. ‘ The effect was to simplify greatly the form on which re¬ 
imbursement was claimed and to facilitate the necessary auditing work 
which was a part of paying the vouchers. 

This leaves only the reports and regulations charge for considera¬ 
tion. One reason that OPA had proposed a reduction here was that 
a substantial number of banks carried less than six programs or had 
very little activity in programs they carried. The extreme example 
was in the South which had a number of banks with one or two shoe 
accounts only, and these very inactive. Reimbursement to some of 
these banks might run to $70 per quarter, of which $60 would be the 
reports and regulations charge. While this had never amounted to 
enough to warrant a change yer se, OPA was anxious to do something 
about it while the schedule was being changed. 

One other point entered the discussions with significant results. 
Both sides hoped there would be no need for further reimbursement 
negotiations after the current ones. Yet it was apparent that not 
all rationing programs would be terminated at the same time. With 
an over-all reports and regulations charge, the fee would either have 
remained far too high as programs ended, or a renegotiation and re¬ 
writing of the regulations would have had to take place. 

These considerations led inevitably to the conclusion that the re¬ 
ports and regulations charge should be put on a program basis, though 
this idea, like the elimination of the five items discussed above, was 
generated only after the conference had begun. Having reached 
agreement on this point, the question arose as to what the figure 
should be. 

OPA’s cost study had indicated an average over-all reports and 
regulations charge running from $4.15 for the smallest banks to 
$22.09 for those in the $12 to $50 million asset size group. The agree¬ 
ment was reached at $3 per program which was the figure which 
enabled more than half the banks in the survey to cover direct ex¬ 
penses. This meant that banks carrying all six programs would in 
the future receive $18 per month as the reports and regulations 
charge instead of $20. Actually, since fuel oil was rationed only in 
certain areas, almost half the banks carried no fuel oil accounts, so 
that the fee for them was cut to $15. There were enough banks 
carrying less than five programs so that the net effect of the change 
was to return to the average bank $15 per month, so that OPA 
achieved a saving of 25 percent in the item by the change. 

One other change was made in the reports and regulations charge. 
The limitation of five eligible offices in any branch system had not 
worked fairly. It was equitable enough in the large cities where 
home office supervision and economies helped the branch office. But 


Financial Reimbursement to Banks 


107 


where a branch was located at some distance from the home office, it 
operated very much like the independent competitor down the street 
so far as ration banking was concerned. In the administration of the 
provision, OPA also learned that in a number of States it is charac¬ 
teristic for rather small banks to have 8 or 10 branches through the 
State. These banks objected that they were truly small banks, the 
kind which the reports and regulations charge had been designed to 
assist. 

The elimination of the limitation altogether was never seriously 
considered since such action would have brought an unwarranted 
windfall to the large metropolitan branch systems where in many 
(probably most) cases the branch was nothing more than a receiving 
station for deposits. The solution finally adopted was to limit the fee 
to no more than five offices within any given city limit. This solution 
was based on the assumption, of course, that a large system within one 
city would be able to enjoy economies in ration banking not available 
to independent banks, but that this would not be true of the more far- 
flung systems. By and large, this assumption was probably valid. 
There remained a certain degree of arbitrariness, of course, in using 
five as the limit, but the solution seemed to be generally satisfactory. 

The impact of all these changes on the OPA budget was, of course, 
substantial. At the quarter ending December 31, 1944, just before the 
new rates became effective, OPA was reimbursing the banks at an an¬ 
nual rate of $12,500,000. The reduction from the peak of a year 
earlier, when the rate had been at $16,700,000, resulted from the intro¬ 
duction of ration tokens and the establishment of the verification cen¬ 
ters with the consequent elimination of bank verification costs. The 
result of the reimbursement renegotiation was to cut the figure of 
$12,500,000 by $2,867,000 or by 23 percent. 

The saving was accounted for as follows. The quarter of a cent 
cut off the item fee meant $790,000. The penny off the deposit cost 
saved $221,000. There was a saving of $785,000 in the penny off the 
check cost, and the change in the reports and regulations charge meant 
a saving of $771,000. Finally, $300,000 was saved as a result of the 
elimination of the five items from the schedule. 

OPA was well satisfied with this renegotiation. A substantial 
saving had been achieved, the schedule had been greatly simplified, 
and the fees appeared to be once again in line with actual costs. There 
remained the problem of announcing the change to the banks, a task 
that was approached with some trepidation. This would be the first 
announcement of a reduction in income to the banks, and they were 
by no means in general agreement that the current schedule was too 
high. As a matter of fact, most banks had no idea of their ration 
banking costs and while the attitude of bankers generally toward 


108 


A History of Ration Banking 

the ration banking chore was most commendable, there were those 
among them who thought it was nothing but more New Deal 
foolishness. 

Ordinarily announcements of this nature were made by memoran¬ 
dum from OPA to the banks. On this occasion, however, it was con¬ 
sidered wiser to put the announcement in the form of a letter from the 
Price Administrator, in which an explanation of the change could 
be made. This letter was not issued until December 12, 1944, in 
keeping with the agreement to withhold it until the Sixth War Loan 
drive had been substantially completed. The Price Administrator’s 
letter cited the decline in the costs of operation as the reason for the 
reduction in the schedule. “This apparently has been true in part 
because of improvement in the plan itself and in part because of the 
greater efficiency which has resulted as bank officers and employees 
learned more about the system and adopted time and money short 
cuts.” 21 

The announcement brought very little comment from the banks. 
A few letters of protest were received, of course, in Washington and 
the field offices, and by the American Bankers Association, but there 
was evidently a feeling that it was not unusual for a negotiation to 
result in a downward adjustment. There was not a single withdrawal 
from the system as a result of the announcement. 


21 Letter, Chester Bowles, “To All Participating Banks,” December 12, 1944. 



CHAPTER X 


Overdrafts 

The greatest difference in operations between ration banking and 
commercial banking was that in the former the banks were under 
instruction to debit any ration check for which they had an account, 
even though the debit might create a negative balance on the particular 
account. Items were never returned by the paying bank to the bank 
of deposit. Payees, or holders of endorsed checks, ran no risk that a 
check might be returned as “n. g.”, “n. s. f.”, or “n. c. f.” 

Essentially, the reason for this provision was that OPA felt that it 
should act to police violations (an overdraft was of course a violation 
of the rationing regulations) of its own regulations, and not leave 
such policing to wholesalers or other suppliers. Organized banking 
had also expressed opposition to the return of ration checks, for reasons 
that will be discussed presently. Finally, when the ration banking 
plan was formalized, it was felt that overdrafts of accounts would 
occur only infrequently. During the trial run in New York State 
only one overdraft occurred, which seemed to bear out this feeling. 

An overdraft could take place for one of two reasons. First, the 
drawer of the check might have adequate ration currency on hand 
but might not have made his deposit. Such an overdraft caused no 
dislocation of the distribution pattern, and could be looked upon as 
a technical violation. It was annoying, particularly if the person 
offended repeatedly, but it did not obtain for the drawer of the check 
any goods which lie could not have obtained quite legally. 

Second, a person could give a ration check knowing that he did not 
have enough currency to cover but hoping to be able to cover by selling 
what he bought before the check cleared or before OPA could appre¬ 
hend him. This type of violation was serious in that it struck at the 
fundamental purposes of the entire rationing system by enabling per¬ 
sons without currency to swell the demand for a scarce article to the 
detriment of legitimate buyers. An interesting illustrative instance 
may be recalled: on one occasion there was a sudden increase in meat- 
fats overdrafts in Philadelphia. Examination of the causes showed 
that a large shipment of Crisco, which had been unavailable there for 


109 



HO A History of Ration Banking 

weeks, appeared on the market; retailers all attempted to buy, without 
regard to their ration bank balances. 

The banks were under instruction to make periodic reports to the 
OPA district offices (of which there were 93) listing the accounts that 
were overdrawn. At that point they had completed their part in the 
transaction; the follow-up was OPA’s job. Later pages in this chapter 
will describe what OPA did and how successful it was. 

In the administration of the ration banking program there is no 
question but that the overdraft problem caused more trouble and 
required more time than any other problem, and perhaps more than 
all others combined. There was also a sharp and abiding difference 
of opinion as to whether the early decision against having checks re¬ 
turned where there was an insufficient balance to cover a check pre¬ 
sented for payment was the proper one. This question was discussed 
many times within OPA during the life of the program, and opinion 
to this day is sharply divided among those who were acquainted with 
the issues. 

This chapter will outline the efforts that were first made to learn 
from all the banks just what the seriousness of the problem was by 
getting an adequate system of reporting, analyze the problem statisti¬ 
cally, discuss the OPA sanctions that were used in an effort to solve 
it, and examine the arguments pro and con reversal of credit. 

Bank Reporting of Overdrafts 

The development of the bank reporting of overdrafts indicates 
clearly an evolution of attitude on the part of OPA from one of 
wanting to know everything about all overdrafts to one of wanting to 
know only about those that might be called serious. This change in 
attitude took place because of the very great volume of overdrafts 
which nearly overwhelmed the undermanned district offices and made 
it essential to concentrate only on serious cases. 

The original bank instructions had stated that “each overdraft 
must be reported to the State or district office of the Office of Price. 
Administration as soon as it is determined that it is an overdraft and 
not a bank error.” They also stated that, “In addition, a report of all 
overdrafts outstanding as of the 15th and last days of each month 
must be made. * * *’ 51 Finally, the banks were instructed to mail 

to the district office all statements and cancelled checks on accounts that 
had been overdrawn at any time during the statement period, instead of 
sending them to the depositor. 

Because of the work involved in rerouting statements, these instruc¬ 
tions were modified on May 25, 1943, 1 2 to say that only those accounts 


1 Manual of Operating Procedure, p. 9. 

2 Manual Memorandum No. 5, May 25, 1943. 



Overdrafts 


111 


overdrawn at statement time need be forwarded to OPA; those over¬ 
drawn but covered could be released to the depositor. A month later 
a further modification was introduced when the banks were released 
from their obligation to report overdrafts as they occurred. 3 The 
semimonthly listing of overdrawn accounts was deemed to be sufficient. 

The requirement that statements of overdrawn accounts be sent to 
OPA at statement period was eliminated on August 28, 1944. 4 On 
October 4,1945, 5 the midmonth overdraft report was eliminated. This - 
instruction completed the trend and left only the very simple require¬ 
ment that overdrawn accounts be listed as of the last day of the month 
and sent to OPA. The trend indicates a desire on the part of OPA 
to reduce its workload by reducing the number of reports coming to 
the district offices and by eliminating as cases those accounts that had 
been overdrawn but were covered by the end of the reporting period. 
It is not that OPA had no concern for these violations, but that they 
were less important than the thousands whose accounts were in 
overdraft status on the last day of each month. 

One of the early problems was to get reports from all banks. In the 
first months of the program this was left to each district office, but 
they experienced great difficulty in getting reports. One difficulty lay 
in the fact that, when questioned, many banks claimed to have no 
overdraft. So long as they had to report only if they had one or more 
overdrawn accounts, it was awkward if not impossible for a district 
office to know that all overdrafts were reported. This situation was 
remedied on May 17, 1944, 6 when the banks were required to submit 
a report whether or not they had overdrafts. A penny postcard with 
the bank’s name and the statement “no overdrafts” was deemed suffi¬ 
cient for the approximately 50 percent of the banks each month having 
none. 

The situation was improved further in September 1944 when an 
overdraft reporting form was distributed to all banks. Prior to that 
time each bank had used plain paper or its letterhead, which not only 
made filing difficult but brought less response than a regular form. 

Little was known about how extensive the reporting of overdrafts 
was before the summer of 1944, except that the prevailing opinion 
in the field was that reporting was poor. In June of 1944 a report 
was asked from four of OPA’s eight regions, and this opinion was 
confirmed. In region I (New England), for that month, 58 percent 
of the banks reported overdrafts or “no overdrafts.” In region II 
(the Middle Atlantic States), the figure was 50 percent; in region IV 


8 Manual Memorandum No. 7, June 23, 1943. 

* Bank Manual Memorandum, August 28, 1944. 

6 Newsletter No. 30, October 4, 1945. 

6 Bank Manual Memorandum, May 17, 1944. 



212 A History of Ration Ranking 

(the Southeast) 41 percent, and in region Y (the Southwest) 38 
percent. 

As a result of this spot check, a district office reporting form was 
instituted, included on which was the percentage of banks reporting 
overdrafts. The tabulations of this form first became available in 
September 1944 and showed 74.5 percent of the Nation’s banks re¬ 
porting. Regionally, the figures varied from a low of 54 percent in 
-region Y to a high of 93 percent in region IY, the latter figure being 
the result of some excellent field work among the banks by the Atlanta 
OPA people. 

The very unsatisfactory nature of reporting generally led the Na¬ 
tional Office to direct its attention energetically to gaining improve¬ 
ment. The banks were reminded frequently of their obligations, and 
the district offices were instructed to get the reports one way or an¬ 
other, even if it meant writing or telephoning every delinquent bank, 
which several of them did. 

The results were -gratifying. The following figures show the per¬ 
centage of banks reporting by months: 

Percent 


September 1944_74. 5 

October_82. 0 

November_86. 5 

December_92. 7 

January 1945_95. 5 

February_97.1 

March_98.0 


Subsequently, the figure remained approximately constant until the 
fall of 1945, when many rationing programs were dropped and the 
rationing personnel in district offices were severely cut. In December 
of 1945, under the impact of these forces, it had fallen to 89.4 percent, 
but was gradually built back up by May to 95, where it generally 
remained. 

Size and Significance of the Problem 

The effort that was put into getting adequate reporting was neces¬ 
sary to obtain a true'picture of the overdraft situation. There is no 
way of knowing how many accounts were overdrawn before the fall 
of 1944 or whether the situation was better or worse than after that 
time. This analysis, therefore, will necessarily be confined to the 
months following that period. 

A general picture of the overdraft problem can be obtained from 
an analysis of a given reporting period. January 31, 1945, is selected 
arbitrarily, though any date would be as satisfactory- since the number 
and size of overdrafts remained fairly stable between the fall of 1944 









Overdrafts 


113 


and the summer of 1945. It is well to remember that overdraft figures 
are not for a monthly period, but as of a given date, and in that sense 
cumulative. The loss to the rationing system in any month is not 
the total amount of the overdrafts reported, but the increase from the 
preceding period. If the amounts are the same for the last days of any 
two months, there has been no net loss to the system: some persons 
have created or increased overdrafts, but others have reduced or 
eliminated theirs to offset them. 

As of January 31, 1945, 7,606 banks reported overdrafts, 6,913 
reported no overdrafts, and 688 banks did not report. The reports 
indicated the following situation to prevail: 


Program 

Number of 
accounts 
overdrawn 

Number 
of units 
overdrawn 

Total 
number of 
accounts 

Meats—fats....__. 

12,663 
4, 884 
6,043 
997 
1,341 
282 

79, 437,231 
32, 404,115 
6,164, 778 
168,696 
4, 079,452 
3, 245,961 

508,000 
450,000 
225,000 
80,000 
120, 000 
42,000 

Poocessed foods.. _ ...___ 

Sugar.. .. ... . .. . ... .. ... . .. 

Shoes_ _____ 

Gasoline___ . .. 

Fuel oil. _ .. ___ 



With respect to the number of overdrafts, the most significant rela¬ 
tionship is with the number of accounts. At that time 1.8 percent of 
the total number of accounts were overdrawn. This figure varied 
from region to region and from program to program; it was highest 
in the meat program in OPA’s region VIII (the west coast) where 
it reached four percent. 

On May 31, 1945, 7,777 banks reported overdrafts, 7,372 reported 
no overdrafts, and 309 did not report. As of that date, with ap¬ 
proximately the same total number of accounts, there were 32,999 
accounts overdrawn, or 2.3 percent of the total. Following VE-day 
compliance began to deteriorate rapidly, as will be pointed out sub¬ 
sequently in connection with the sugar experience, but no great vari¬ 
ations occurred prior to that date. With from 2 to 2% percent of 
the accounts overdrawn, the system was certainly not threatened with 
disintegration. With respect to the number of accounts overdrawn, 
it was important to keep the number from becoming too large because 
of a breakdown in trade morale which might otherwise occur if mer¬ 
chants felt that “practically everybody is overdrawing”. OPA was 
successful in avoiding this occurrence. 

With respect to the number of units overdrawn the figures appear 
to be tremendous, but this was true of almost all figures connected 
with the rationing program. On January 31, the table indicates that 
almost 80 million red points were overdrawn. But on the same date 
the credit balances in meat-fats accounts throughout the country to- 

















114 


A History of Ration banking 


tailed 50 billion points. In other words, the number of points by 
which red ledgers were overdrawn was sixteen one-liundredtlis of 1 
percent of the number of points on deposits in meat accounts. 

Meat was always the most difficult program from a compliance point 
of view, which is why emphasis is laid on that program. The cor¬ 
responding figure for processed foods on the same date was 0.04 per¬ 
cent, for sugar 0.10 percent, for shoes 0.10 percent, for gasoline 0.09 
percent, and for fuel oil 0.04 percent. These figures seem to demon¬ 
strate conclusively that the extent of ration banking overdrafts did 
not constitute a serious threat to the rationing programs. The number 
of units lost in each program, was simply not great enough to be 
called a large factor in the balance sheet of rationing. 

The threat that this might develop was always present, however, 
which meant that a great deal of work had to go into keeping this 
threat submerged. The methods used to combat overdrafts will be 
discussed shortly; suffice it to say here that a great deal of time was 
spent by OPA district office personnel to keep the trade aware of the 
fact that OPA was intent on keeping the problem in hand. In a few 
districts this was not done, and the problem went rapidly out of hand 
as the trade discovered that OPA could not or would not take action 
against overdrawers. This was the essence of the overdraft problem; 
it was an ever-present situation which constituted easily the greatest 
administrative burden of the ration banking program. A solution 
to it would have released hundreds of sorely needed man-hours per 
month in almost every district office. 

One other point should be made in connection with overdrafts. 
With the coming of VE-day, and later the end of the war, compliance 
with the overdraft requirements deteriorated rapidly as the general 
let-down of OPA employees and the trade took place. This was par¬ 
ticularly true of programs which were obviously going to be termi¬ 
nated shortly. In meat, for example, the last record was gathered 
as of September 30, 1945, when the trade, as well as a substantial 
portion of OPA field personnel, was certain the program was about 
to end. On that date the number of meat accounts overdrawn stood 
at 30,082 (5.6 percent of the total) and the number of points involved 
reached a total of 328,766,140, which, however, was still only 0.64 
percent of the total ledger balance. 

The situation in sugar rationing after the end of the war illustrates 
some of the difficulties that came with a relaxation by the trade as 
well as by the OPA field offices. In October 1944, 8,000 sugar ac¬ 
counts were overdrawn in the amount of 7,200,000 pounds. By July 
31, 1945, the figures were 8,655 and 8,900,000, respectively, the months 
intervening having seen very little fluctuation. Following that date, 
however, the situation began to deteriorate rapidly as the postwar 


Overdrafts 


115 


let-down took hold. The number of overdrafts and the number of 
pounds overdrawn soared in the following manner in the next few 
months. 7 


Month 

N umber of 
accounts 
overdrawn 

Pounds over¬ 
drawn 

Month 

Number of 
accounts 
overdrawn 

Pounds over¬ 
drawn 

August 1945_ 

September 1945. ... 

October 1945_ 

November 1945_ 

11,144 
11,404 
13,944 
16,906 

10, 532, 588 
11,967, 783 
12, 005, 618 
18, 776, 942 

December 1945_ 

January 1946_ 

February 1946.. .. . 

17,867 
17, 782 
21, 044 

19,927, 714 
17, 779,827 
19, 561, 510 


By February the situation was truly alarming, with 8 percent of all 
sugar accounts overdrawn, 9.6 percent in region II (the Middle Atlan¬ 
tic States). One of the important reasons for this development was 
the reorganization of the rationing division in the field offices with a 
substantial reduction in personnel in the fall of 1945 as rationing pro¬ 
grams were terminated. A rather natural accompaniment of this de¬ 
velopment was that some work did not get done, and work on over¬ 
drafts was one of the first to be sacrificed. The result, as pictured in 
the table above, indicated the real need for constant attention to this 
problem. 

Early in 1946 the National Office began to place more and more em¬ 
phasis on field work on overdrafts and the picture began a gradual 
improvement. By dint of hard work the number of overdrafts was 
reduced to 14,455 by May 31, 1946, and the number of pounds to 12,- 
001,697. This was a substantial improvement over February although 
much remained to be done. 

OPA’s Method of Combating Overdrafts 

The policing of overdrafts was the exclusive job of OPA. The 
bank’s function was discharged when the overdraft report had been 
properly filed with the OPA district office. Some banks, however, de¬ 
veloped the practice of calling depositors before the report was sub¬ 
mitted, asking them to cover where possible, and this practice was 
encouraged by OPA. For example Newsletter No. 17 8 contained 
several excerpts from district office reports stating how helpful certain 
banks were in calling depositors and thereby keeping their overdraft 
reports briefer than they would otherwise have been. 

But while such activities could be, and were, helpful, the real burden 
fell on OPA. The first staff memorandum on ration banking 9 stated 
that “The enforcement attorney in the State or district office will in- 


7 The number of accounts remained steady at about 260,000 after August 1945 ; the total 
ledger balance at about 8 million pounds. 

8 April 26, 1945. 

» Paul M. O’Leary, Deputy Administrator in charge of rationing, to all regional rationing 
executives, January 22, 1943. 


























116 


A History of Ration Banking 

vestigate overdraft cases. * * *” The thought had been that each 

overdraft case would form the subject of an investigation. 

There were three courses of action open to the enforcement at¬ 
torneys. They could bring a criminal case against a violator, though 
ordinarily this could be successful only where the violation was both 
substantial and willful, and the sanction was rarely used. They could 
sue for an injunction against a repetition of the violation, which 
would make subsequent violations susceptible to contempt of court 
proceedings. Finally, they could request an OPA Hearing Commis¬ 
sioner for an administrative suspension order, the effect of which was 
to prohibit the violator from engaging in business while the suspension 
was in effect. This period might be for a day or for the duration of 
rationing, depending on the facts as developed during a hearing be¬ 
fore the commissioner. 

The suspension order was the most frequently used sanction, though 
in some areas injunctions were sought with some frequency. None of 
these sanctions, however, was suitable for a great many of the over¬ 
draft cases. Where the overdraft was serious or willful or both, they 
could be and were used, of course, but numerically most overdrafts 
were neither. Prosecution of a small merchant who overdrew once 
by 50 or 75 pairs of shoes because he forgot to make a deposit or did 
not quite understand the system would have been a waste of man¬ 
power; even if prosecuted, no Federal judge would convict or enjoin 
and no hearing commissioner would suspend. 

The volume of cases referred by banks to district offices would have 
made it impossible for enforcement attorneys to prepare them all as 
cases even if it had been sound policy to do so; for while an overdraft 
was an easy violation to prove, a certain amount of work was required 
to prepare the case. 

As the program grew older and these facts became apparent, the 
district offices began to devise procedures that were better suited to 
the problem. Rationing personnel began “screening” the cases, re¬ 
porting the repeat or large cases to the enforcement attorney, and 
sending mimeographed form letters to the balance. This procedure 
was formalized in April of 1944 when the National Office issued in¬ 
structions prescribing form letters and their use. Henceforth, a 
depositor generally received form warning letters on his first two 
violations; on the third overdraft, or earlier if a serious offense 
occurred, the case went to the enforcement attorney for action. 

Two significant consequences flowed from this procedural change. 
First, the enforcement attorneys were freed from the mass of trivia 
which had previously come to them; any case they now received had 
been warned twice, and warranted immediate attention. Secondly, 
each violator received a letter warning him to eliminate his overdraft 


Overdrafts 


117 


and not to repeat the violation. Previously, the enforcement at¬ 
torneys had been unable to handle all cases so that many small viola¬ 
tors had not even received attention from OPA. This was most im¬ 
portant, since whenever the trade felt that OPA was not interested 
in violations of its regulations, compliance rapidly deteriorated. 

The screening process described above was undoubtedly an im¬ 
provement over previous procedures, but it was truly effective only 
where the enforcement attorneys gave it vigorous backing b}r follow¬ 
ing through against repeat violators. Unfortunately, this did not 
occur in every district office; in some there were not the man-hours 
available, in others the attitude of the hearing commissioners on 
overdraft cases might discourage the enforcement attorney. The 
problem remained very much alive. 

An analysis of overdraft data shows that the most serious situation 
was in the food programs, particularly meat and sugar. For example, 
of the 29,315 accounts overdrawn as of October 31, 1944, 21,157 were 
in these two programs and 26,779 were in the three food programs. In 
October of 1944 a special survey of overdrafts in food accounts indi¬ 
cated that 47 percent of these were in institutional user accounts. 
This fact, plus the nature of institutional user accounts led to the 
adoption of a new technique for this particular group of depositors, 
in an attempt to get at the general problem by a special attack on this 
segment of it. 

It will be remembered that the institutional user received an allot¬ 
ment of currency each two months which he was required to make last 
until the next period. He customarily made one deposit in his ration 
bank account every two months, and drew the balance down gradually 
in the ensuing two months. Apparently many institutional users were 
using the overdraft as a device to tide them over the end of each period 
until the allotment was received. This fact does not show up in the 
overdraft statistics, probably because there were too many program 
changes and .other factors at work, but the field offices were nearly 
unanimous in claiming this to be the case. If this practice were 
followed consistently, the institutional user frequently found .his po¬ 
sition becoming progressively worse until his allotment would not 
cover his debt. 

One other peculiarity of the institutional user account merits men¬ 
tion again at this point. Unlike the retailer or wholesaler, he was not 
required to have a ration bank account, but permitted to have one if he 
chose provided he was above a certain size. The reasons for this 
difference were not clear, but the fact of the difference made it legally 
simple and morally justifiable to treat his as a separate group. The 
idea grew that his account was permitted him by OPA as a convenience 
and that if he misused it, it should be taken from him. 


A History of Ration Banking 

After considerable discussion within OPA, which was characterized 
by a substantial difference of opinion as to the wisdom of the change, 
the food regulations were amended in February 1945 and a new pro¬ 
cedure adopted for handling institutional user overdrafts. 10 Because 
they were so similar, industrial users were included also. * 11 

The new procedure stated that whenever an institutional or indus¬ 
trial user account was overdrawn, the violator would receive a letter 
from OPA informing him that his account would be closed (1) if the 
overdraft was not covered immediately after the beginning of the next 
allotment period, or (2) if he drew any more checks before it was 
covered, or (3) if he complied with the tw T o previous conditions but 
ever overdrew the account again. The debit balance would be trans¬ 
ferred to his local rationing board and deducted from his next allot¬ 
ment. Thenceforth he would not be permitted to have a ration ac¬ 
count; at allotment period he would receive coupons which he would 
be required to transfer directly to his supplier as he purchased. 

It will be noted that this sanction did not deny the violator the right 
to engage in business; it merely made it somewhat more inconvenient 
for him to do so by making him use currency rather than checks. The 
sanction was, in severity, somewhere between an admonitory letter 
and an actual suspension. It functioned quite automatically and re¬ 
quired no hearing. The only fact that would stay the operation was 
a demonstration that the bank had made an error so that an overdraft 
had not in fact existed. No provision was made then Or subsequently 
for permitting the reopening of any account closed under the proce¬ 
dure; indeed no real pressure ever developed for making any such 
provision, even after the procedure had been operative for some 
months. 

It is not possible to measure with any accuracy what effect this 
procedure had on the general overdraft problem. In the neighbor¬ 
hood of 5,000 accounts were closed under it, and in addition to the 
direct effect of eliminating this number of overdrafts, there must 
have been a considerable effect from the example set. The procedure 
was not followed in all district offices because it was sometimes not 
possible to separate the institutional and industrial user accounts 
from others. In the New York City district offices, for example, be¬ 
tween 1,500 and 2,000 overdrafts each two weeks were reported by 
banks and there was not enough man-power available to check all 
these names against the registration statements to ascertain which 
type of account they were. While “Joe’s Bar and Grill” was ob¬ 
viously an institutional user, “John Smith” was utterly unidentifiable. 

19 Amendment 92 to General Ration Order 5, February 7, 1945. 10 F. R. 1495. 

11 Amendment G to Second Revised Ration Order 3, February 7, 1945. 10 F. R. 1537. 

Amendment 73 to Revised Ration Order 13, February 7, 1945. 10 F. R. 1539. Amendment 
39 to Revised Order 16, February 7, 1945. 10 F. R. 1539. 



Overdrafts 


119 


But the procedure was generally most welcome in the district offices 
of more moderate size and was considered invaluable as a weapon 
in the overdraft arsenal. 

One other device, while not precisely a sanction, was used with good 
results in a few districts. Known as the “compliance conference,” 
it was developed initially in Hartford, Conn., and was used rather 
extensively also in Boston, Philadelphia, and Detroit, among other 
districts. In these districts, one or two days per week were set aside 
for the scheduling of conferences, usually at 15 or 20 minute intervals, 
with persons whose accounts were overdrawn and who had not cov¬ 
ered after receiving the warning letter. In addition to the violator, 
both rationing and enforcement representatives of OPA attended 
the conference. 

In the course of the conference, the subject’s inventory position 
was examined with him and a measure of his rationing assets and 
liabilities taken. The rationing representative, who was an expert 
in the regulations, was able to see whether there was some provision 
which the violator did not know about which would help him. As 
often as not this was the case, since merchants were ignorant of pro¬ 
visions that helped them as well as others. For example, any meat 
retailer handling heavy mutton was entitled to apply for and receive 
a point per pound for all such mutton sold by him. Most of them 
did not know this and at the compliance conference his rights would 
be carefully explained. 

In more than half the cases, the subject would be able to get himself 
straightened out as a result of information obtained at the confer¬ 
ence. and would get his overdraft covered in due course. At the 
same time, if he had been patently violating, he was informed of the 
formal action OPA intended to take against him and dismissed. 

The compliance conference had as its greatest advantage the fact 
that it enabled OPA to help those who deserved help, and separated the 
others out quickly. The conferences were well thought of by the trade 
and where they were used extensively they were an important factor in 
gaining the respect and cooperation of the trade. They were used in 
only a feAv districts because of the time required by OPA personnel 
which was already overworked. 

The basic weapons of OPA remained the warning form letter and 
the administrative suspension order. And the basic limiting factor 
remained the limitation of manpower which plagued the program in 
almost every district office from the beginning to the end. The pres¬ 
sure in the districts from overdrafts was constant and unrelenting. 
Every two weeks, later every month, an average of 150 banks per dis¬ 
trict reported an average of 300 overdrafts per district. After work¬ 
ing to get all the reports in on time, letters had to be written, telephone 


120 


A History of Ration Banking 

calls made, interviews held in response to these, and a few cases pre¬ 
pared for presentation to the hearing commissioner or to a court. And 
before this was quite completed, the next cycle had arrived and more 
cases were pouring in. Many of the district office employees cracked 
under the strain from time to time and the fact that OFA was able to 
keep the problem in bounds is testimony to the devotion of the district 
office personnel. 

The Question of Reversal of Credit 

Under the circumstances described above, it was natural that the 
proposition should have been made many times that the bank instruc¬ 
tions should be changed and that any check which would have created 
an overdraft should be returned forthwith to the bank of deposit and 
debited back against the depositor as an n. g. check. The depositor 
then would have to collect the valid currency and OPA’s problem would 
disappear. This position was taken by many bankers and by many in 
OPA. Many times in bankers’ meetings which were addressed by an 
OP A official, the question would be raised from the floor in the discus¬ 
sion period: “Why don’t you let us bounce those checks? We’ll solve 
your overdraft problem for you in a hurry if you do that.” Many 
banks also expressed the feeling that OPA did not act quickly enough 
after receiving the bank overdraft report, and feared that the slackness 
of ration depositors might carry over to their money account. It 
should be added, however, that the official position of the American 
Bankers Association was always opposed to reversal of credit. 

While the wisdom of instituting such a reversal of credit procedure 
was discussed many times, the fullest discussion with the widest partici¬ 
pation took place in the early months of 1944. The problem can be 
presented best by an analysis of that discussion and the accompanying 
documents. There were three distinct positions taken at thtft time, one 
strongly favoring reversal of credit, and two strongly opposing it but 
for significantly different reasons. 

The first position was taken by the enforcement department in OPA 
which was groping for a solution to the overdraft problem in order 
to reduce the field workload. They reached the conclusion that “by 
far the simplest method of handling the overdraft problem is to amend 
the present instructions to provide that overdraft checks shall be 
charged back to the depositors by the banks, as is their practice with 
monetary checks.” 12 

The memorandum claimed a number of advantages in support of 
the position. Basic to all was the claim that the mere public announce¬ 
ment of the change would vastly reduce the number of bad checks by 
making buyers afraid to give such checks to suppliers. They would 


12 Memorandum, Thomas Emerson to Bryan Houston, February 22, 1944. 



Overdrafts 


121 


fear the resultant damage 
particularly detrimental in 


to their credit standing, which would be 
a seller’s market. The correlative claim 


was also made, namely, that suppliers would exercise more caution in 
accepting checks and would therefore do a good deal of the screening 
for OPA. 

Since the point was made so consistently that the procedural change 
in itself would eliminate most of the problem, it may be well to detour 
momentarily to consider another change which was analogous and 
which throws at least some light on this contention. Originally, checks 
received in clearance for which no account existed in the bank were 
referred to the OPA district office from which the attempt was made 
to trace the drawer and to collect valid currency from him, or to 
prosecute him if he was intentionally using checks on a bank in which 
he had no account to avoid payment. 

This procedure proved too burdensome and early in 1944 it was 
changed. After the change the OPA merely returned the check to 
the depositor with notice that his account was being debited and that 
he should collect from the drawer either a valid check or ration cur¬ 
rency. This was a form of reversal of credit, operated by OPA rather 
than by the banks. The assumption was that it was not too much to 
ask the supplier to be sure that his purchaser at least had an account 
at the bank on which he was drawing, or to collect again from him if 
he made an error. And of course it was assumed that when the pro¬ 
cedure had been in effect for a period of time, the practice would stop. 
The interesting thing was that there were no fewer cases after the 
change than before; as a matter of fact most district offices experienced 
a gradual increase. 

If this experience was at all analogous, as it seems to have been, it 
casts considerable doubt on the contention that reversal of credit would 
automatically eliminate most of the problem. 

The second position on the reversal of credit problem was that there 
were so many technical problems involved as to make the idea infeas¬ 
ible. This position was put forward most completely in a letter to 
OPA from the American Bankers Association dated February 17, 
1944. 13 This letter emphasized the operating problems that banks 
would experience if the procedure were instituted. 

No great problem was anticipated where a check was presented 
against a balance which was insufficient, though the point was made 
that errors would necessarily occur from time to time, with conse¬ 
quences to be described below. But the real difficulty would occur 
when uncollected funds existed in the account. To be more specific, 
if a ration check for 1,000 points was deposited by Mr. X to his credit, 


18 Letter, Wilbur Lawson to Joseph A. Kershaw, February 17, 1944. 


741926—47 


9 




122 


A History of Ration Banking 


the credit would have to remain fictitious until time had elapsed for 
the check to be returned by the drawee bank if it should not be good. 
Meanwhile, checks drawn by Mr. X could not be debited against the 
uncollected 1,000 point credit. 

Since it was customary, and probably necessary in view of the 
volume of business banks were doing during the war, for ration checks 
to be cleared and posted less promptly than dollar checks, the regular 
time limits by geographical zones on the collection of funds could not 
be made applicable. It would be necessary, therefore, to establish 
special clearing rules, which would be at best extremely complicated. 

In addition to the expense of watching accounts so closely and the 
trouble from inevitable mistakes, the banks expressed an unwilling¬ 
ness to undertake some of the necessary judgments. For example, they* 
asked, what should they do when an account had a balance of 1,000 
points and three checks for 500 points each were received simulta¬ 
neously in clearance ? Which one should they return ? And if they 
called the depositor, a trusted customer of the bank, who promised 
to make the deposit to cover “first thing in the morning,” should they 
decide whether he meant it and assume the risk ? They would do so 
on a dollar account, but in rationing it was not their own assets they 
were risking. Those questions seriously troubled the bankers; they 
did not want to have to face them and they did not want to risk the 
strain in their customer-relations that might develop. Yet they felt 
that hard and fast rules for each possible contingency could not be 
developed or made practicable. 

The Association added another argument. They felt that reversal 
of credit would create an insistent demand for a much more wide¬ 
spread use of certified checks, since some suppliers would be unwilling 
to accept regular ration checks from some buyers. Since the certified 
check took teller window time, they were anxious to avoid its extension. 
Closely related thereto, they expressed considerable conviction that 
the number of calls coming into banks asking for information about 
balances in accounts would increase substantially, a development they 
were also anxious to avoid. 

The final point made in the Association letter was that returned items 
were expensive to handle, an item that should be of interest to OPA. 
They pointed out that the usual charges for returning dollar checks 
varied from fifty cents to $2 each in various banks. 

During this period the president of one of the large Eastern banks 
was attached to the OPA as a part-time consultant on ration banking. 
He subscribed to the argument presented above and added the follow¬ 
ing: “I would stress one more point which, to my mind, makes such a 
procedure impossible; namely, that I believe counsel for the great 
majority of banks would rule against the inauguration of a return 


Overdrafts 


123 


item system. In money banking, a check is either good, drawn against 
uncollected funds, or “insufficient funds”. In ration banking the 
“floats” of uncollected deposits and the hazards of forged paper are 
such that the bank could not determine if the check was good in a large 
proportion of the cases. Return of doubtful items might well subject 
the bank to endless suits for damage of credit. ... I believe a pro¬ 
gram of complete reversal of credit would cause wholesale with¬ 
drawals from ration banking by participating banks, and might well 
leave many communities without any ration banking facilities. It 
would be a most impractical and dangerous experiment. I find com¬ 
plete unanimity on this score among bankers.” 14 

To these arguments some of the OP A personnel added a few more. 
In particular the matter of the liability of endorsers was raised. “The 
last endorser, or the depositor, may retain possession of the check 
returned to him because of ‘insufficient funds’ for an unduly long 
period before proceeding against the previous endorser. This pre¬ 
vious endorser may hold the check for a time before proceeding against 
the prior endorser, etc. This raises the question of the liability of 
endorsers who are not notified promptly of the dishonor of a ration 
check.” 15 

There was also a question raised as to the problems that reversal of 
credit would raise for the Federal Reserve banks. Frequently checks 
were forwarded to the Reserve banks for clearance by the bank of 
deposit without the endorsement of the bank of deposit. With the 
“sort and send” type of operations followed by the Reserve banks this 
did not matter particularly, since the drawee bank (the destination of 
the check) was always plainly marked. But if checks were to be re¬ 
turned, the endorsement was crucial, since only by it could the bank of 
deposit be identified. Without the daily settlement of balances that 
characterizes the clearance of dollar checks, it was questionable whether 
mechanics could be established to assure the appearance of this endorse¬ 
ment on every check. 

The third position with respect to reversal of credit, to which the 
author subscribed, held that it would be an unwise procedure to insti¬ 
tute ; but because of its effect on the trade and on the rationing system 
rather than because of technical banking difficulties. Admittedly the 
technical difficulties cited were for the most part valid, but they were 
difficulties only, not impossibilities. By the same token it could have 
been argued, and probably proved, in the summer of 1942, that ration 
banking itself would not have proved possible to install. Without 
question, reversal of credit would have required a lot of planning and 

14 William Fulton Kurtz, “Report on Ration Banking,” May 26, 1944. (A report to the 
Office of Price Administration.) 

15 Memorandum, Martin Walls to Louis J. Kroeger, “Critique of ‘Reversal of Credit’ 
System,” February 16, 1944. 



I 


^24 A History of Ration Banking 

thought, would, have changed rather fundamentally certain paits of the 
ration banking program, and would have changed the reimbuisement 
schedule, probably upward. But the change could have been made had 
it been desirable; furthermore, it would have been made without 
“wholesale withdrawals of participating banks”, for while it was true 
that the American Bankers Association strongly opposed the move, in 
the opinion of the author there would have been strong support for it 
from the great majority of the banks, who were tiring of submitting 
reports and seeing little action. 

Nevertheless, reversal of credit did not seem wise to this group. Its 
reasons are found in the nature of the rationing flow-back. Under the 
rationing regulations any merchant who had a ration bank account was 
required to use it for all his rationing transactions. He was not free 
to give “cash” instead of a check to a supplier who didn’t know whether 
his credit was good, or who was unwilling to assume a risk. This pro¬ 
vision had been written into the regulations for the specific purpose of 
assuring OPA that a record of all rationing transactions would appear 
in one place for all merchants who had accounts. Time had proven it a 
useful device. 

The reversal of credit proposal would have shifted the burden of 
responsibility for the validity of ration checks from the drawer to the 
payee. Without it, OPA proceeded against the drawer whenever the 
check turned out to be invalid. With it, the payee would have to as¬ 
sume this function; in many cases he would be successful, in some he 
would not. This shift could not be made without giving suppliers 
some way to hedge against the risk. Otherwise suppliers would simply 
refuse to sell to many merchants (the market was a seller's market, it 
will be remembered) and the distribution system would be tied in knots. 

There were two methods by which this could be accomplished. 
First, the supplier could be permitted to require that checks be certified 
by the bank before he would accept them, thus being assured that the 
check was valid. This alternative was ruled out as being simply im¬ 
possible, not only because of the expense involved, which would have 
been considerable, but because the banks could not take on an extensive 
window operation under wartime business conditions. They had 
neither the window or lobby space, or the personnel, and were unable 
to get either. 

The second method, which was given a good deal of thought, was 
to abandon the requirement that all rationing transactions be by check 
and to permit the use of stamps and coupons as currency where needed. 
For retailers this would have been feasible, since in their day-to-day 
business they received stamps and could hold some of them out of the 
bank for paying certain suppliers. 


Overdrafts 


125 


But institutional and industrial users had no ration currency if they 
had bank accounts. Instead, they received a single certificate or ration 
check from the rationing board every two or three months. This was 
deposited and drawn against as needed. Some method would have 
had to be established to permit them to exchange checks for currency 
when needed, and the only available place would have been at the local 
boards. 

To establish an exchange mechanism at local boards would not have 
been impossible, but it would have run counter to all that experience 
taught was wise. Bation banking had originally been established 
largely because the boards were unable to perform the exchange func¬ 
tion properly. It would appear to be highly doubtful wisdom to ask 
them once more to undertake this function, to establish the complex 
accountability procedures that were necessary to protect the currency, 
and to run the risks of currency thefts which occurred all too fre¬ 
quently. 

The decision had to he made with all these factors in mind. To go 
on without reversal of credit meant continuing to spend a good deal of 
time on overdrafts in the field, and some loss of ration credit through 
this loophole. To change, however, meant a fundamental change in 
the ration banking system over the opposition of organized banking, 
creating a number of new operating problems the magnitude of which 
could not be forecast, creating a problem of adjustment at district 
offices where checks were incorrectly paid by drawee banks, and making 
it necessary to establish at local boards an exchange mechanism of 
some sort. 

It was not certain of course that the change would solve the problem. 

Overdrafts which showed up before in retailer accounts might merely 

be thrown back into wholesale accounts where thev would become in- 

%/ 

visible, swallowed up by sizeable credit balances. Whether whole¬ 
salers would proceed against their own customers for ration debts is 
not known. 

In view of all the uncertainties, and (very important) in view of the 
fact developed previously that the overdrafts did not constitute a 
serious program threat, the decision was made and adhered to for the 
life of the program not to adopt a reversal of credit procedure. 



CHAPTER XI 


Ration Bank Accounts for Government Agencies 

Two kinds of ration bank accounts were opened and used b} r Gov¬ 
ernment agencies as a mechanical aid in the rationing programs, 
though not because these agencies were limited in their legal authority 
to procure the rationed commodities. The first were the accounts used 
by the so-called ‘‘exempt agencies,” those Government agencies like 
the War and Navy Departments who were expressly exempt in the 
rationing regulations from the restrictions. The second were the va¬ 
rious OPA offices, which used accounts for specialized purposes not 
related to the acquisition of rationed commodities. These specialized 
uses to which the ration banking program was put warrant a brief 
description. 

The Exempt Agency 

When the supply agency delegated to OPA the authority to ration a 
commodity or group of commodities, it was customary to name certain 
Government departments whose acquisition of the commodity OPA 
could not limit. These came to be known as “exempt agencies.” Most 
of their supplies of the rationed commodity were obtained outside the 
rationing system but it was also necessary for them to buy from re¬ 
tailers or wholesalers. 

To illustrate, the Department of Agriculture was the supply agency 
for sugar. At the beginning of each quarter, the Department made 
allocation of a certain number of tons of sugar to the army, a dif¬ 
ferent sum to the navy, another to lend-lease, and so forth. The 
residual amount was allocated to the civilian population; it was this 
amount that OPA attempted to ration among consumers, home can- 
ners, institutional users, and industrial users. The tonnage going to 
the army, and other exempt agencies, was taken from the refiner for 
the most part before it ever entered the rationing system and was 
viewed as nonexistent by OPA for rationing purposes. The civilian 
allocation was therefore far less than the total supply. 

Most of the army’s sugar, to continue with the example, was delivered 
in bulk by refiners for use in major military installations or for ship- 

127 



128 


A History of Ration Banking 

ment to troops overseas. But a rationing problem arose because it 
was not feasible to supply all the army’s sugar from this bulk alloca¬ 
tion. In small army posts, it was far simpler and more economical 
for the sugar to be purchased locally as needed. This was in fact 
done with every rationed commodity by at least some of the exempt 
agencies, a procedure which bought the exempt agency into the market 
which held civilian supplies only. 

This problem was handled in the following fashion. The alloca¬ 
tion granted by the supply agency to the exempt agency was given in 
effect in two parts. The bulk allocation from the primary producer 
level was made somewhat smaller than the total need, and it was as¬ 
sumed that the balance would be taken from civilian supply channels. 
It may be noted once again that OPA had no authority to place any 
limit even on the amount taken from civilian supplies. If an exempt 
agency had a mind to, it could buy to excess in the civilian market and 
distort completely the distribution pattern. For this, or for using 
however much more than it agreed to at allocation period, it was 
answerable only to the supply agency, not to OPA. 

When an exempt agency purchased directly from a retailer or whole¬ 
saler, provision had to be made for the seller to receive some sort of 
ration currency so that he would be in a position to replace his de¬ 
pleted inventory. (The primary distributor covered himself by re¬ 
porting exempt agency sales in his regular OPA report.) 

This problem was handled before ration banking was installed by 
making available to every purchasing unit in every exempt agency a 
special type of certificate which merely had to be filled out for the 
proper number of units and handed to the seller at the time of the sale. 
The certificate then entered the currency stream and followed the same 
course as any other certificate. An attempt was made, when the 
certificates reached the local boards, to sort them and return them to 
the point of issue where the exempt agency presumably checked them 
to see that they had been properly issued for a proper purpose. This, 
however, was a laborious task for both OPA and the exempt agency 
and was never considered satisfactory by either. 

Shortly after the ration banking program was launched, exempt 
agencies were brought into the program in order to facilitate this pro¬ 
cedure. 1 Each purchasing unit of each exempt agency opened a ration 
bank account in the regular fashion for each program in which it was 
active (except shoes). The ration check then replaced the certificate. 
In two ways this was a distinct improvement. First it eliminated a 
substantial workload in OPA’s local boards which no longer had to 
sort and return thousands of certificates. Second, the check was a 
much simpler instrument to handle, and the task of the exempt agency 


1 General Ration Order 3B, March 1, 1943. 8 F. R. 2665. 



129 


Ration Rank Accounts for Government Agencies 

in auditing its own issuances and controlling its own personnel was 
simplified. 

Except in the food programs the use of certificates by exempt agen¬ 
cies was never entirely eliminated. They were still used in gasoline, 
for example, to issue rations to personnel on official transfers, and for 
use in army vehicles on maneuvers; in fuel oil also they were used by 
drivers of Diesel-using vehicles. For these small purchases at road¬ 
side gasoline stations the ration check was hardly suitable, since hav¬ 
ing authorized signatures on file at a bank would have been impracti¬ 
cal. But almost all gasoline and fuel oil was purchased by ration 
checks. 

In shoes no accounts were opened by exempt agencies. Here the 
typical purchase by the services which was not in bulk from manu¬ 
facturers was for one pair of shoes by an officer. Certificates con¬ 
tinued to be used for this purpose. 

Exempt agency accounts differed radically from others. In order 
to prevent the balance in the account from limiting the issuance of 
checks, they were operated on an unlimited overdraft basis. In most 
of them, few if any deposits were ever made, and they were con¬ 
sistently and legally overdrawn. The banks were instructed to pay 
no attention to the overdraft status of these particular accounts, for 
that would be their normal condition. In order to keep the negative 
balances from climbing to unmanageable heights, the banks were in¬ 
structed to bring the balance to zero on the first day of each month and 
to begin a new ledger sheet with a zero balance. * 2 

The banks were also instructed to keep their exempt agency ac¬ 
counts in a separate ledger from all others. Had this not been done 
the ledger balance figure reported by banks would have been badly 
distorted. Instead, the banks reported separately the exempt agency 
negative balance as of the end of each month, a figure which was 
extremely useful as a check on the armed services at allocation time. 
If the services used more of a commodity from civilian channels 
than they estimated in advance, it meant that the civilian allocation 
was in fact smaller than OPA had been assured. 

From the point of view of the exempt agencies, these unlimited 
overdraft accounts were most satisfactory. OPA was also generally 
satisfied with having the exempt agencies in ration banking, but the 
unlimited overdraft account never functioned as well as it might. 
The larger banks were able to handle such accounts without diffi¬ 
culty, but the idea was so alien to many smaller bankers that they 
were never quite sure about the operation. Many army posts were 

located in the rural South, where the nearest bank was very small; 

" ■ ■ 

2 In many of the accounts the balances would have exceeded the capacity of bookkeeping 
machines except for this provision. 



130 A History of Ration Banking 

the overworked banker frequently could not get accustomed to an 
unlimited overdraft account. 

As a result, trouble of one sort or another always seemed to be 
arising. A bank would forget to reduce the balance to zero, another 
would report a “serious overdraft” to OPA which would turn out 
to be an exempt agency account, still another would open an unlimited 
account for an officer’s club, which should have been treated as a regu¬ 
lar civilian institutional user, and so on. No one of these problems 
was particularly serious, but in toto they were annoying. On several 
occasions OPA suggested to the exempt agencies that the accounts 
be changed in some way so that they would have positive balances, 
but without success. 

A brief description may be in order for what was called a “special” 
exempt agency account for the navy. Because thousands of naval 
vessels touched United States shores now and then, many of them 
very infrequently and many in secret, it was out of the question for 
the navy to set up separate exempt agency accounts for each vessel 
and record authorized signatures with banks. To solve this problem 
one account for each rationed commodity (except shoes) was estab¬ 
lished in a Washington bank. Checks were printed for these accounts 
without any commodity name, and the accounts had no authorized 
signatures on file. 

These checks were then distributed by the navy to purchasing 
officers on hundreds of ships. When the ships touched land (these 
were mostly small ships, of course) the purchasing officer used his 
checks, filling in the proper name for the rationing program as well 
as the other necessary information. When the checks cleared, the 
drawee bank in Washington paid them automatically, acting merely 
as a record-keeper. The navy undertook to verify the signatures 
for authenticity. 

OPA Ration Bank Accounts 

It will be recalled that one of the serious defects of the preration 
banking system when currency was exchanged at local rationing 
boards for certificates had been the impossibility of returning the cer¬ 
tificates to their point of issue for audit. This problem had been 
solved when ration banking supplanted this exchange mechanism. 
But the boards continued to issue certificates periodically to institu¬ 
tional and industrial users and occasionally to retailers and whole¬ 
salers. The same problem persisted with these certificates. 

Even before ration banking was installed there was considerable 
discussion about having boards and other OPA offices open accounts 
and use ration checks for issuance purposes instead of certificates 
and certain coupons. The step was not taken at that time for reasons 


Ration Rank Accounts for Government Agencies 131 

not relevant to this discussion, but the matter was reconsidered at 
frequent intervals after that. 

The proposed OP A account system had a number of advantages 
beyond permitting the audit of issued currency. It would eliminate 
a number of certificate forms, thus simplifying the currency system. 
This in turn would eliminate the work and difficulty of distributing 
these forms, which was always a real task. Each certificate contained 
a serial number and had to be accounted for at each distribution 
point. Because they were subject to the constant hazard of theft, 
boards were not permitted to have more than a 15-day supply on hand 
at any one time, which meant that, in spite of every effort, some boards 
were always exhausting their supply. Finally, the use of bank ac¬ 
counts would permit the work of the issuance clerks to be checked 
more closely and would facilitate the audit of the use of the ration 
checks by the trade. 

These advantages were readily agreed to by all concerned; the 
procedure was not installed, however, until the fall of 1944 because 
it was estimated that it would cost in excess of $1,000,000 annually 
more than the then current system. 3 This increased cost was ac¬ 
counted for primarily by the fact that each check issued would incur 
a charge of four cents (the debiting fee) whereas there was no such 
charge attached to certificates. The costs of opening and maintain¬ 
ing accounts for 5,600 local boards and 93 districts would also be 
additional, but the check charge was by far the greatest. 

The issue came to a head during the summer of 1944 when large- 
scale counterfeiting developed in the gasoline inventory and bulk 
coupons. These coupons, issued in denominations of 1 and 100 gal¬ 
lons, were issued to bulk consumers (those having their own gasoline 
storage tanks) and to retailers and intermediate distributors for in¬ 
ventory adjustments. At one point during the summer these coupons 
in the 100-gallon denomination were selling for 3 for $50 on the black 
market, and a way had to be found to eliminate them. Accordingly, 
local boards began opening gasoline accounts on August 15, 1944, and 
after September 1 they ceased issuing bulk and inventory coupons; 
the ration check replaced these coupons and one form of gasoline 
certificate that had been issued to large bulk consumers with bank 
accounts. 4 

Ration accounts in gasoline worked well, and were received ex¬ 
tremely well in the field. About this time also the reimbursement 
renegotiation was successfully concluded with substantial savings. 
As a result, all other programs were added during November. 5 


8 Memorandum, Joseph A. Kershaw to Burke Fry, October 4, 1943. 

4 Supplement 17, Bank Operation Memorandum, August 10, 1944. 

8 Supplement 24, Bank Operation Memorandum, November 14, 1944. 



132 


A History of Ration Banking 

Since the only issuance of currency in the shoe program at local 
boards was of the special shoe stamps worth one pair each, there 
was no need for bank accounts for boards in shoes. With this excep¬ 
tion each local board and each district office had an account for each 
program as did the National Office. Generally speaking these accounts 
were operated by the banks in the same fashion as other ration ac¬ 
counts. In most cases activity on the debit side was heavy since most 
offices issued a good many checks. 

Ordinarily also, activity on the credit side of the ledger was light 
since OP A offices had relatively few deposits. But most of them did 
receive checks now and then as repayment of debt by the trade or 
other inventory adjustment. Prior to the opening of OP A accounts 
these checks had been handled, first by direct return to the drawee 
bank by mail, and later by being sent by boards to district offices, 
listed there on a transmittal letter and forwarded to the nearest Fed¬ 
eral Reserve bank from which they were handled like any other transit 
item. After the board and district office accounts were opened these 
checks were merely deposited in the appropriate account. This was 
a much simpler method of clearing these checks promptly. 

In two respects the OP A accounts differed significantly from others. 
They were installed in the fall of 1944 when the reimbursement for 
each check paid was four cents. Because OPA accounts would be 
“good” accounts for the banks—that is, heavy debit activity and light 
deposit activity—and because the installation of the system would 
eliminate most of the troublesome certificates, the bankers through 
their Association had strongly favored the idea. When OPA pro¬ 
posed, therefore, that checks on OPA accounts should be reimbursed 
at a rate less than four cents, agreement was reached without difficulty 
on a rate of three cents and announced to the banks. 6 

The second significant difference between these accounts and others 
lay in the manner in which the credit balance was maintained. The 
original intention had been to establish unlimited overdraft accounts 
similar to the exempt agency accounts. It has already been pointed 
out, however, that these accounts created continual difficulties in some 
of the smaller banks and to avoid an extension of these, the American 
Bankers Association made an interesting suggestion which w T as 
adopted and which enabled all these accounts to be carried on a credit 
basis. The Association was anxious to avoid the extension of the 
unlimited overdraft system, which was not popular with the banks. 

The Ration Credit Draft 

Since the deposit of checks received from the trade would ordi¬ 
narily be insufficient to cover the withdrawals of an issuing office, a 


6 Supplement 17, Bank Operation Memorandum, August 10, 1944. 



133 


Ration Bank Accounts for Government Agencies 

new instrument, known as the “ration credit draft,” was devised to 
enable the office to establish its credit. As its name implied, the ration 
credit draft was an instrument deposited in one bank for credit and 
cleared for debit to another bank. To be more specific, a local board 
filled out a credit draft and deposited it in its account for credit. 
The draft was drawn on the district office’s bank and cleared to it by 
the local board’s bank. At the district office bank the debit was en¬ 
tered against the district office account, the draft canceled and re¬ 
turned to the district office along with the statement and canceled 
checks. In turn, the district office deposited credit drafts in its own 
account drawn on the National Office account. 

The payee line of the credit draft was imprinted with the legend 
“ourselves only” so that it was not-negotiable. It carried also the 
printed name of the drawee bank and of the account. The drafts 
were printed by the drawee bank and distributed for use by the dis¬ 
trict or National Office. Thus, the district office bank printed an 
average of 50 pads of drafts, Which the district office distributed to its 
local boards for their use. The National Office bank printed drafts 
which the National Office distributed to the 93 district offices. 

The drafts were check size and were handled in clearance like any 
check. The name of the rationing program was not imprinted, but 
was left blank to be filled in at the time of deposit so that one pad of 
drafts could be used for all programs. Incidentally, credit in the 
National Office account was established by a “letter of credit” instruct- 
ing the bank to enter a fixed credit whenever the balance fell below 
a designated point. 

The essential function of the credit draft, of course, was to enable 
the accounts to be carried on a credit basis and thus eliminate the 
need for unlimited overdraft accounts. One byproduct, however, 
which fortunately never had to be used, is significant. For the first 
time OPA was in a position where it could exercise ironclad control 
over issuance in the field. 

Stamps and coupons of fixed value were distributed to boards and 
district offices by OPA’s eight distribution centers and could be care¬ 
fully controlled. But as long as the boards had certificates whose 
amounts were filled in at the time of issuance, the total issuance of the 
board was not under tight control. After the accounts were opened, 
however, it would have been a simple matter to bring all the credit 
drafts from the boards to the district office, and to issue one each 
month for the amount of the quota allowed that board less the coupons 
sent it. The fact that this device was available was comforting during 
some of the near-crises although it never had to be used. 


134 


A History of Ration Ranking 


Operation of Accounts by OPA 

Generally the operation of these accounts created no particular 
problems of importance. Three minor problems required some atten¬ 
tion at first. First, the OPA offices were instructed to ignore the stubs 
on the checks (the banks were given the option of supplying checks 
without stubs on these accounts) and were given a sort of check regis¬ 
ter to use. This was essential whenever the * issuance was in any 
volume. But many boards insisted on using check stubs in addition 
to the register, feeling that the process would be incomplete if the 
stubs were left blank. This of course slowed the issuance process 
dangerously and impaired other board work. It was several months 
before this could be stopped in boards and even in some district 
offices. 7 

Second, the district offices had difficulty at first in keeping their 
credit balances properly. They could keep a satisfactory record of 
their own check issuances, but each had an average of 50 boards writing 
drafts which became debits in the district office accounts. The boards 
were instructed to deposit monthly only what they would need for 
the coming month and both they and their district office had good 
issuance records on which to estimate this need. But inevitably some 
boards deposited too much now and then which would throw the dis¬ 
trict office account temporarily into overdraft. This was not serious, 
however, and as time went on the situation settled down. 

Thirdly, the problem of reconciling OPA accounts presented some 
unanticipated difficulties. Chief among these was the tendency of 
some checks to remain outstanding for long periods of time. This was 
particularly true in the gasoline program. Where a dealer had a 
5,000 gallon storage tank but rarely received deliveries in excess of 
1,000 gallons, he might never have occasion to use an inventory check 
for several thousand gallons. This check, therefore, would remain 
outstanding for the life of the program. 

As time went by the number of outstanding checks became a higher 
and higher percentage of the number of checks issued in any given 
month. While it never became impossible to reconcile an account, 
it did become more time consuming where issuance was in heavy vol¬ 
ume. This led to a change in instructions on June 16, 1945, and 
OPA offices stopped reconciling their accounts. 8 Actually, of course, 
reconciliation was not necessary to the proper control of these accounts, 
whose balances were really quite fictitious. The important thing was 
that the cancelled checks be compared to the issuance record to make 

7 One district office representative visited his boards and destroyed all the check stubs to 
insure against their being used. 

8 War Price and Rationing Board Loose Leaf Service, No. 214. June 16, 1945. 



135 


Ration Bank Accounts for Government Agencies 

sure that the checks had really been issued by that office and that they 
had not been raised or altered. These verifications continued to be 
made. 

As has been pointed out previously, these difficulties were not funda¬ 
mental in any sense. The system was a very definite improvement in 
the currency and issuance method and permitted a substantially greater 
measure of control. The field was pleased with the change, and it 
worked exceedingly well. 










' 




■ 












, 

' . 


■ 
















CHAPTER XII 


The Legal Arrangements 

The legal authority to ration stemmed from the Second War Powers 
Act of 1942 1 which conferred upon the President the right to allocate 
scarce materials whenever necessary in the interests of the national 
safety and welfare during the emergency. The President, by Execu¬ 
tive order, 2 transferred this authority to the Office of Production 
Management (later the War Production Board). The War Produc¬ 
tion Board in turn delegated general authority to ration to the Office 
of Price Administration by Directive No. I. 3 These orders were 
amended and supplemented from time to time and specific directives 
with respect to each commodity rationed were issued at the appro¬ 
priate time either by WPB or by another supply agency in those cases 
where WPB redelegated this authority. At the time a specific direc¬ 
tion to ration was issued to OPA by any of the supply agencies, the 
allocation authority was included in the directive. Rationing regu¬ 
lations were then drawn and issued by OPA, deriving the force of 
law from the Second War Powers Act. 

The General Nature of Rationing Regulations 

For the most part there was one rationing regulation for each 
commodity or group of commodities rationed. Thus, Ration Order 5 
contained the requirements for those dealing in or using gasoline, 
and Ration Order 16 was the regulation for all the commodities in¬ 
cluded in the meat, fats, fish and oils program. 

In addition to the regulations for each program, there were certain 
other regulations, called general ration orders, which were broader 
than any single program. For example, General Ration Order 5 
contained the requirements for institutional users of all food commodi¬ 
ties that were rationed at any given time, cutting across several pro¬ 
grams. Again, General Ration Order 9 had to do with rations issued 
to servicemen on furlough, their rights and obligations in several 
commodity programs being covered in one regulation. 

1 Sec. 301, Pub. Law 507, 77tli Cong., 2d sess., approved March 27, 1942, 56 Stat. 176. 

2 Executive Order 8875, 6 F. R. 4483, August 28, 1941. 

3 7 F. R. 562, January 24, 1942. 


741926—47 


10 


137 




138 


A History of Ration Banking 


The Nature of the Ration Banking Regulations 

In order to give the ration banking program the force of law, it 
was necessary to draft regulations dealing with the banks and with the 
depositors. Since such different, problems were presented, it was de¬ 
cided at an early date that the regulation governing the banks should 
be separate from that governing the depositors. The bank regulation 
became “General Ration Order 3—Ration Banking—Banks,” 4 a gen¬ 
eral order because it affected a number of rationing programs. 

The question of how to formulate the regulation governing deposi¬ 
tors was more difficult. During the experiment in New York State 
there was no separate regulation for depositors; rather the sugar regu¬ 
lation (Ration Order 3) and the gasoline regulation (Ration Order 
5C) had been amended to include the obligations of all merchants in 
each of those programs. The question was whether (1) to follow 
that procedure for all programs when ration banking was extended 
throughout the Nation, (2) to take all ration banking references out of 
all commodity regulations and incorporate all these provisions in a 
general ration order, or (3) to incorporate provisions common to all 
depositors in a general ration order and include in the commodity 
regulations those matters pertaining exclusively to the particular trade. 

The third alternative was selected as the most satisfactory, on the 
ground that a shoe retailer, for example, should be able to learn as 
much as possible from the shoe regulation (Ration Order 17) about 
his rationing obligations and that the general ration order to which 
he was referred by the shoe regulation would be shorter and simpler 
if it did not have sections on each commodity. This method was 
economical of space and words, and left jurisdiction of part of the 
requirements on ration banking with those administering the commod¬ 
ity regulations. This multiple jurisdiction created some problems of 
administration, but such problems were inherent in an operation such 
as ration banking which crossed several commodity program lines. 

The existing commodity regulations were amended, therefore, and 
later regulations were written, to include provisions having to do with 
which merchants were required or permitted to have ration bank ac¬ 
counts, under what circumstances checks had to be certified, how chain 
stores operated balances for individual outlets and for the system as a 
whole, and other provisions that might differ from program to pro¬ 
gram. “General Ration Order 3A—Ration Banking—Depositors” 5 
contained provisions common to all programs, such as how to open and 
close an account, how to write and issue a check and what records were 
to be kept. 


* January 27, 1943. 8 F. R. 865. 

6 January 27, 1943. 8 F. R. 1130. 



139 


The Legal Arrangements 

One other regulation, though much less important than the preced¬ 
ing two, deserves mention. It will be recalled that certain government 
agencies operated what were called unlimited overdraft accounts. To 
formalize the procedure under which these agencies operated, “General 
Ration Order 3B—Ration Banking—Exempt Agencies” 6 was issued. 
These regulations will be discussed in turn. 

General Ration Order 3 

In many ways General Ration Order 3 was unique among rationing 
regulations. It was a completely voluntary regulation, having no 
effect on any bank unless the bank chose to enter the system and assume 
the obligations and privileges. Once having elected to do so, the 
bank was always free to withdraw, though in most situations only 
after 30 days’ notice. The regulation contained no penalty provision, 
and the privileges were frankly designed to balance the obligations. 
In consequence, no litigation involving the validity or interpretation 
of the regulation arose during the course of its administration. 

The regulation was brief and rather simple. It had only four 
major provisions, and of these the first two contained the essence of 
the regulation. The first 7 provided that a bank incurred the obliga¬ 
tions and received the privileges of the regulation upon the opening 
of its first account. Reimbursement was then detailed, followed by 
the right of a bank to withdraw voluntarily and OPA’s right to re¬ 
quire a bank to withdraw on 30 days’ notice. Voluntary withdrawal 
was permitted on 30 days’ notice unless OPA changed certain desig¬ 
nated provisions of the regulation without 30 days’ notice, in which 
case immediate withdrawal was permitted. Included in these desig¬ 
nated provisions were those dealing with reimbursement, with reversal 
of credit, and several others affecting the liability of the banks. 

The second important part of the regulation 8 concerned the opera¬ 
tion of ration bank accounts by the banks. It listed fourteen posi¬ 
tive duties which in effect told the banks what they were to do. 
These were followed by a most important paragraph, as follows: 

All of the foregoing shall be done in accordance with the provisions of the 
Manual of Operating Procedure and such other written instructions as may 
from time to time be issued by the Office of Price Administration . 9 

The significance of the foregoing paragraph lay in the flexibility it 
afforded the administration of the program. Procedurally, it is diffi¬ 
cult and time consuming to amend a regulation. An amendment must 
be studied carefully by many people, it must be inserted in the Fed- 
it reaches the Register. Instructions, on the other hand, were much 
eral Register and it is ordinarily not effective for about 10 days after 

6 March 1, 1943. 8 F. R. 2665. 

7 Section 1305.411. 

8 Section 1305.412. 

9 Section 1305.412 (b). 



140 


A History of Ration Banking 

simpler to issue. They were less formal, could be written more quickly 
and mailed directly to banks, to be effective on receipt. 

The fourteen listed functions were general rather than specific. That 
on the acceptance of deposits, for example, read as follows: 

Participating banks shall . . . accept deposits of all evidences presented in 
proper form for deposit. Count, verify, and maintain proper control over all 
evidences deposited. Credit the proper accounts with the amounts of all ap¬ 
parently valid evidences deposited . 10 

It was possible to make changes in bank deposit acceptance by in¬ 
struction rather than amendment by merely defining in the instruc¬ 
tion the terms used in the above provision. Amendment was required 
only when major changes, such as the introduction of deposit enve¬ 
lopes, were made. The speed of action that was gained from the 
flexibility of the regulation was invaluable, particularly during the 
early part of the program when rapid changes were being made. 

The third substantive section was inserted to make it unnecessary 
for banks to have new endorsement stamps made. Most bank en¬ 
dorsement stamps guarantee all prior endorsements on the check. 
This could not be done in ration banking because the bank was in no 
position to make a guarantee when it had no assets with which to back 
up a guarantee. Section 1305.413, therefore, specifically relieved banks 
of responsibility for prior endorsements even though their stamp 
contained the customary legend. 

Finally, section 1305.414 required banks to keep all ration banking 
records confidential except that they were to be made available to 
any bank examiner specified by OPA, and to the Department of Jus¬ 
tice and OPA. 

General Ration Order 3 was amended very infrequently in com¬ 
parison with other rationing regulations. From its effective date on 
January 27, 1943, to the end of 1945 it was changed fourteen times. 
Of these fourteen amendments, five were made to incorporate changes 
in the reimbursement schedule. * 11 Four were technical changes to 
adapt the regulation to the token program, one was necessary when 
envelopes came into use, and another when verification centers were 
established. Amendment 14 changed some terms when the ra¬ 
tioning department was abolished, and sugar was the only commodity 
still rationed. 

Of the remaining two, Amendment 2 provided a method for clos¬ 
ing the accounts of large numbers of food retailers when the eligibility 
was changed in 1943. Amendment 3 made ration checks transferrable 
by nondepositors, permitted banks to retain small retail accounts if 


10 Section 1305.412 (a) (2). 

11 Amendments 4, 6, 9, 10, and 11. 



141 


The Legal Arrangements 

they wished to do so, clarified the deposit verification requirements 
in view of the envelope situation, and specifically made eligible for 
participation cooperative credit associations in Nebraska which had 
been outside the original eligibility definition but which OPA de¬ 
cided were desirable participants. 

General Ration Order 3A 

General Ration Order 3A, like General Ration Order 3, was brief 
and simple. If defined the obligations of the depositor with respect 
to the banks and the system. It told how accounts were opened, how 
deposits were made, how checks were used and how accounts were 
closed or transferred. It applied equally to all depositors regardless 
of what rationing program was involved. 

The regulation was amended six times during its life, and revised 
once, 12 though no amendment was fundamental. For example, amend¬ 
ment 1 changed the requirement that certain information must be 
kept on check stubs, so that persons using check registers (without 
stubs, of course) would be in compliance. 

The most significant of the six changes was amendment 1 13 to the 
revised regulation which removed the limitations on the use of altered 
checks to the extent of permitting the use of a check when the commod¬ 
ity name only was changed. This was brought about by the abrupt 
termination of coffee rationing, which found many banks with sub¬ 
stantial inventories of coffee ration checks. The change, made to per¬ 
mit the use of these checks, was of doubtful wisdom, since of course 
it was never possible to know that the change was made before and 
not after issuance and transfer of the check. Instances of illegitimate 
alteration arose frequently enough to be annoying, though not serious. 

General Ration Order 3B 

General Ration Order 3B was peculiar in that it contained pro¬ 
visions governing exempt agencies over which OPA had no rationing 
authority. Though in the form of a regulation, General Ration Order 
3B therefore had only one compulsory feature, and was more in the 
nature of a published agreement than an administrative law. It will 
be remembered that exempt agencies (for example, the army and 
navy) were those agencies whose ability to purchase rationed com¬ 
modities OPA could not limit. The language of the regulation re¬ 
flects this lack of authority. 

The regulation stated that any exempt agency “may” (not must) 
open an account “at any convenient bank” (not necessarily where it 


12 August 25, 1943. 8 F. R. 11669. 

13 October 11, 1943. 8 F. R. 13738. 



142 


A History of Ration Banking 

had a dollar account). Exempt agencies, in the conduct of their ac¬ 
counts, differed in three respects from others. First, they were per¬ 
mitted to overdraw freely— a no balance is required between debits and 
credits.” Secondly, they were permitted to open separate accounts for 
their debits and credits where desirable. This was to facilitate their 
own control operations and was permitted at their request. Thirdly, 
special checks could be used for which no authorized signatures were 
required. 14 

Exempt agencies were required to deposit all ration currency in their 
accounts if they had accounts. This requirement was inserted at 
OPA’s request, and by agreement with the exempt agencies so that 
figures on bank deposits would reflect the total amount of ration cur¬ 
rency used in the system. 

This regulation was amended only once when a purely technical 
change was made. 15 Other than this, it stood as originally written 
until the end of 1945. 

Disposition of These Regulations 

General Ration Orders 3A and 3B were revoked on January 1,1946. 16 
By that time sugar was the only commodity remaining on the rationed 
list so that there was no longer reason for most of the general ration 
orders., For reasons of legal and administrative simplicity, therefore, 
the provisions of these two orders were transferred to and incorporated 
in Third Revised Ration Order 3, the sugar rationing regulation. 17 

General Ration Order 3 was allowed to retain its separate identity, 
largely because it was of interest only to banks, and because all banks 
had copies of it in their loose-leaf instruction manuals which made it 
convenient to keep it separate. 


14 See Ch. 11 for a discussion of this feature as used by the navy. ' 

15 July 14, 1943. 8 F. R. 9457. 

10 Order of Revocation, General Ration Order 3A, January 1, 1946. 11 F. R. 165. Order 
of Revocation, General Ration Order 3B, January 1, 1946. 11 F. R. 165. 

17 January 1, 1946. 11 F. R. 134. 



CHAPTER XIII 


Conclusion 

Like most of the elements that fitted into the wartime economic 
endeavor, the ration banking program had its share of successes and 
failures. In retrospect, the most significant fact is that it worked, 
that it accomplished what it set out to accomplish. Previous chap¬ 
ters have discussed and analyzed most of the program’s technical 
problems; some conclusions about the program in general may now 
be indicated. 

The Number of Participating Banks 

In terms of the basic structure of the program, one change might 
well have been made which would have improved its efficiency and 
reduced its cost. A persuasive case can be made for the position that 
the number of participating banks should have been less by from 
one-third to one-half. The original decision, it will be recalled, was 
to invite the participation of all commercial banks, and almost all 
accepted the invitation. This approach had the advantage of elimi¬ 
nating all problems of competitive bidding, which would have been a 
part of any selective process, and of being the quickest way to get 
the program started. These were important considerations in early 
1943. 

The quality of service rendered by the banks varied widely from 
one to another. In the smallest banks the ration banking work was 
generally done last. Postings were made weekly, if that often, for the 
forty or fifty accounts usually handled by such institutions, and re¬ 
ports were made either late or not at all. The problem of keeping 
abreast of the many procedural changes w T as a real one. Finally, 
supervision from OPA, which will be discussed presently, was almost 
nonexistent. Under such conditions, the quality of the ration bank¬ 
ing work was frequently not good. 

At the other end of the scale, by way of contrast, the largest bank 
in the program had 12,000 accounts, nearly 1 percent of the total. 
The bank had a separate rationing department with 30 employees 


143 



144 


A History of Ration Banking 

handling 4,000 checks daily and 1,000 deposits. Supervision was 
excellent and instructions were scrupulously followed. 1 

Between the two extremes, quality of performance varied from one 
bank to another, frequently depending on the attitude of the super¬ 
vising officer. In one middle-sized branch system, for example, qual¬ 
ity of performance was excellent, primarily because the officer in 
charge of ration banking was both conscientious and meticulous about 
instructions. His manuals, written from the OPA instructions, were 
excellent, frequently superior to the OPA manual. On the other 
hand, some other middle-sized banks performed in a mediocre fashion, 
viewing the program as temporary and therefore not particularly 
important. 

The problem inherent in this situation could have been minimized 
if a careful selection of 5,000 to 7,000 banks had been made. Many 
of the small country banks carried accounts so small that their elimi¬ 
nation would not have been important. In the towns and small cities, 
one of the several banks might have been designated the “ration bank”. 
The concentration of ration banking activity would have facilitated 
immensely the problem of supervision. 

On the other hand, whereas technical performance might well have 
been improved by using a smaller number of banks, other problems of 
an even more serious nature would probably have been raised by such 
a procedure. The process of selection would have been time-consum¬ 
ing, but even more important, it would have seriously disturbed the 
relationships between customers and banks throughout the Nation. 

Following the installation of the program, the possibility of work¬ 
ing out such an arrangement was considered on a number of occasions. 
It was rejected each time on the ground that making the selection 
would bring too many unfavorable repercussions. OPA’s field or¬ 
ganization resisted designating one out of, say, the three banks in any 
one town as the best adapted to conduct all ration banking in that 
town. While most banks did not enjoy their participation, they would 
not have wanted a competitor to assume the whole function; the likeli¬ 
hood is that dollar accounts would have folfbwed the ration stamp. 
In the light of these considerations the original decision seems to have 
been the proper one. 

Bank Performance 

The novelty of the program, the frequency of its change, and the fact 
that all banks were extremely busy during the period with a greatly 
expanded commercial banking business, largely account for certain 
deficiencies in bank performances which merit comment. It may be 

1 Memorandum, J. A. Kershaw, Head, Ration Banking Section, to L. J. Kroeger, Execu¬ 
tive Officer, “Ration Banking in New York City,” May 15, 1943. 



Conclusion 


145 


emphasized that no general indictment is intended; the fact remains 
that some parts of the operation (the clearance of checks, for example) 
were done better than others. 

(a) Bank reports. —The struggle to obtain overdraft reports on time 
from all banks has been described in chapter 10. Much the same thing 
took place with respect to the monthly statistical report. This report 
was to be filed each month with OPA’s central inventory unit in New 
York City, where it was tabulated and forwarded to the National 
Office. It set forth figures from the bank’s proof sheets and contained 
such figures as the number of different types of stamps and coupons 
deposited during the preceding month. 

In October 1943 OPA sent a communication to the banks reading 
in part: “On the fifteenth of September, five days after all reports for 
August were due , the central inventory unit had received only 8,000 
of the 15,000 reports.” 2 By a constant follow-up of delinquent banks, 
this problem was corrected and reporting was brought to about 98 
percent. 

In terms of the accuracy of reporting, however, similar efforts did not 
bring comparable results. It was necessary to continue a careful 
editing of the reports for the life of the program and each month to 
return a substantial number for correction. The memorandum quoted 
above continued, “Of these 8,000 reports, 1,400 contained errors which 
were obvious to the persons processing the report.” Many errors were 
trivial and should not have occurred: for example, 125 reports of the 
8,000 had simple errors in addition. In March 1945 the problem was 
no nearer solution; in that month 882 banks added incorrectly the 
listing of individual gasoline coupons. 

Many errors were detected in the editing process. How many went 
undetected is, of course, unknown. For most of them there could be 
little excuse. For example, one bank reported an April 30, 1944, 
ledger balance in shoes of 2,286,450. Since this looked out of line 
with the rest of the report, the report was returned for verification. 
The corrected report was returned indicating a ledger balance of 
1,102. 3 This type of inaccuracy not only limited the use to which the 
figures could be put, but caused considerable waste of OPA’s manpower. 

(b) Shipments to verification centers. —The problem of bank and 
depositor endorsements on items shipped to verification centers was 
similar in nature. The failure on the part of many banks to adhere 
to the endorsement instructions impaired seriously the operation of 
the centers. At one time the banks, in a communication asking for 

2 Information Memorandum No. 17, October 6, 1943. Italics in original. 

8 Some of these problems are dealt with in more detail in an address by the author to the 
National Association of Supervisors of State Banks, reproduced in the Proceedings of the 
43d Annual Meeting, 1944, Milwaukee, Wis., pp. 83-91. 



146 


A History of Ration Banking 


fuller cooperation, were told that “In some regions bank endorsements 
are missing on as many as a quarter of the items we receive.” 4 This 
situation persisted in spite of individual reminders sent by the centers 
and constant comments in newsletters about the problem. 

* ( c) Custody of items .—Both defalcations and thefts of currency 
from outside are inevitable in bank handling of currency. These 
things occurred in the handling of ration currency as well. To some 
extent the losses were inevitable, but in many instances they might have 
been avoided. While exact figures are not available, it is probable 
that 50 or 60 major thefts occurred in banks, some with and some 
without the participation of bank employees. 

For the most part, OP A felt that such occurrences could be at¬ 
tributed to the failure of bank officers and employees to appreciate the 
value of ration currency. Actually, it was extremely valuable in the 
black market. It was quite possible in 1944, for example, to carry 
$25,000 worth of gasoline coupons in a brief case. 

Two examples of how ration currency disappeared may be cited. 
In the first, a clerk was verifying deposits at a desk separated from 
the lobby by a marble rail. She left the desk for a. moment and 
returned to find all the coupons gone. In the second, two officers 
checked the currency against the proof sheets before shipping it to 
the verification center. After proof they assigned it for wrapping 
and sealing to a janitor who had been with the institution for 28 years. 
The janitor removed a little each time before wrapping. Both in¬ 
stances, incidentally, occurred in highly reputable banks. Both could 
have been prevented. 

The foregoing paragraphs indicate some of the areas in which the 
performance of some banks was unsatisfactory. By and large, how¬ 
ever, an amazingly good job was done by them. Problems were rare 
in such matters as posting, clearing checks, submitting statements, 
and in other procedures which were similar to commercial banking 
operation. It is significant that general performance was less good 
when it came to the physical handling of deposited items. It was 
here that commercial banking experience was of least help, and it 
was here that the greatest complexity was found. 

The ration currency itself was complex. For most of the period, 
the banks were handling six different programs, each with several 
types of currency valid at any given time, and other types recently 
invalidated, or soon to become valid. At one time there were nine 
kinds of coupons in gasoline alone, each expiring at a different time 
only to be replaced by a new one. That invalid items were accepted 
on occasion was not surprising. 


4 Newsletter No. 23, June 28, 1945. 



Conclusion 


147 


In addition, the frequency of change in administrative procedure 
contributed to the complexity and created confusion in some bankers’ 
minds. Rationing was dynamic and OP A had to keep the banks 
informed of new developments that affected their operation. During 
1943, in addition to the Manual of Operating Procedure, 52 instruc¬ 
tional communications were sent to the banks. While some of these 
were of passing significance only, many were of real and lasting im¬ 
portance and required substantial operational changes on the part of 
the banks. Even during the calendar year 1945, more than 30 com¬ 
munications were sent to the banks. 

Supervision of Banks by OPA 

In one highly significant particular, OPA failed to discharge its 
responsibility in the program. With proper OPA supervision of 
the participating banks, many of the problems enumerated in the 
foregoing paragraphs could have been avoided or easily and quickly 
solved. Banks could have been shown how to function properly and 
invited to leave the system if they would not, or could not, do so. 
As it was OPA never had enough manpower in its field offices to 
perform this function satisfactorily. 

Some help was obtained in the task of supervision from examiners 
of the Federal Deposit Insurance Corporation and the Federal Re¬ 
serve System, and from the State and national bank examiners. All 
these examiners carried with them on each regular examination a 
ration banking questionnaire which was submitted to the responsible 
officer. If this indicated any trouble, the examiner probed into the 
operation or reported the matter to OPA. This type of help was of 
value psychologically, but did not provide real supervision. 

Much work could be done, and was done, through State and local 
bank associations. But what was needed was a constant program of 
visits to banks. In the course of such visits, two things should have 
been accomplished. First, the president should have been kept con¬ 
stantly in sympathy with the program so that he would see that it 
received enough help and supervision. Second, time should have been 
spent with the employees, going through the operation to make 
certain that instructions were being followed and adequate controls 
maintained. 

The National Office instructions called for four visits annually to 
be made to each bank by OPA district office personnel. With rare 
exceptions this schedule was never met. A study of bank visits was 
made for the months of April, May and June of 1945. Each district 
office was asked how many banks had been visited during that period. 
Had the standard of four visits per bank per year been adhered to, 


148 


A History of Ration Banking 


each district would have visited a hundred percent of its banks in the 
three-month period. Actually, the accomplishment was as follows: 


OPA region : 

1 _ 

2 _ 

3 _ 

4 _ 

5 _ 

6 _ 

7 _ 

8 _ 


Percentage of banks visited 
during 3-month period 
April—June 1945 

_ 23 

_ 13 

_22 

_ 27 

_ 42 

___ 17 

_ 61 

_21 


This record was poor enough in itself, the national average being 
one visit per bank each year, but 26 of the 93 district offices had visited 
10 percent or less of their banks, and 6 had visited none. The last 
category included the largest district in the country—New York City 
and environs—with 900 banks and branches. 5 

Under these circumstances the wonder is that the program operated 
as well as it did. Sometimes extremely unsavory conditions were 
found when a visit was finally made. In one case, a district office 
official made his first call on a bank early in 1945, two years after the 
program started. He found all the deposits that had ever been made 
lying in boxes in a small room; no checks had ever been cleared, and 
no ledger sheets had been made up for any depositor. The bank was 
required to withdraw immediately, but this action should have been 
taken months earlier. While this case was by no means typical (ac¬ 
tually it was the most extreme case uncovered), it illustrates the dan¬ 
gers involved in letting the program run itself. 

A final important consequence of this lack of supervision deserves 
mention. Under General Nation Order 3, OPA could require the 
withdrawal of any bank for any reason on 30 days’ notice. 6 This 
right was exercised very sparingly (in only about fifteen instances 
throughout the program), not because bank performance was so gen¬ 
erally excellent, but simply because supervision was so slight that it 
was unusual when poor bank performance came to OPA’s attention. 
Had OPA been able to make wider use of its compulsory withdrawal 
powers, the banks in general would have had a good deal more respect 
for the ration banking instructions and regulations. It was un¬ 
fortunate that many bankers were aware of the fact that, while other 


8 Memorandum, Kershaw to All Regional Ration Currency Control Officers, “Bank Visits,” 
August 10, 1945.. 

0 Section 1305.411 (d) (2). This authority was reserved to the National Office by Gen¬ 
eral Ration Order 3 ; to require a bank to withdraw was a very serious move—it was essen¬ 
tial that a careful and consistent policy be followed in exercising the authority. 












Conclusion 


149 

banks were not complying with instructions, they were not appre¬ 
hended by OFA. 

General Conclusions 

Three very general conclusions emerge from the preceding chapters. 
First, the currency system that developed as the rationing systems were 
successively launched was complex and clumsy; some sort of banking 
arrangement was needed to enable it to function. The exchange 
mechanism originally installed at the local rationing boards did not 
prove satisfactory. Something beyond that had to be devised. 

Second, the ration currency and banking system was sufficiently 
similar to the commercial currency and banking system so that com¬ 
mercial banking procedures could be adapted to handle it on a part- 
time basis without insuperable difficulties. The smoothness with 
which the program was installed attests the truth of this assertion, 
as does its successful withstanding of the very severe shock a month 
later occasioned by the introduction of ration stamp envelopes in place 
of gummed sheets for food. 

Fundamentally, there were major differences between the ration 
currency and dollar currency systems. There was no rationing func¬ 
tion analogous to the creation of bank money through the extension 
of bank loans. It might be contended that the existence of ration over¬ 
drafts was a form of bank ration credit. But the banks were com¬ 
pletely passive agents in this procedure, and the procedure was of 
course quite illegal. 

The lack of a circularity of flow of ration currency also distinguished 
it from money. Ration currency did its job but once; no problems 
of velocity of circulation arose, either with money or bank deposits. 
But these differences served merely to limit the role of the banks in 
the rationing system; they did not militate against its adaptation to 
commercial banking procedures. 

Third, the Government’s decision to draft the commercial banks 
appears in retrospect to have been sound. Question might be raised 
as to the merits of calling on an existing set of economic institutions 
to perform the necessary function as against establishing a new bank¬ 
ing system operated by OPA. In favor of the latter, it may be pointed 
out that the use of the commercial banks required OPA to expend a 
considerable amount of time and energy on bank relations, that control 
of bank operations was not as direct as might have been desired, and 
that, since it was a part-time job for the banks, yielding no net income, 
some of them gave it less attention than was desirable. 

On the other hand, there is much to be said particularly in what is 
known in advance to be a temporary situation, for refraining from 
building up a large administrative structure. To make such a struc- 


150 


A History of Ration Banking 

ture operate effectively and efficiently requires time, as the verification 
center experience amply demonstrated; ration banking had to be 
effective from its first day in operation. Similarly, to stop it and 
liquidate it requires time, whereas the ration banking system will be 
terminated by a brief instruction mailed to all banks when sugar 
rationing terminates. 

Part of the answer to the question surely rests in the costs of the 
alternative methods. Definitive answer to this part of it cannot be 
given, though it would appear to be doubtful at least that a banking 
system could have been operated as inexpensively without unrealistic 
centralization. After all, OPA paid no fees for rent, heat, light and 
most supervision, and the fees it did pay were based on costs of opera¬ 
tion in areas where bank employees are the acknowledged experts. 

So long as the program was temporary, the administrative costs of 
maintaining bank relations and of less direct control, which were offset 
in substantial part by the positive contribution of bankers’ representa¬ 
tives in assisting in the program, were outweighed by the advantages 
of the system as it was operated. 

It is clear that while the ration banking system fell some distance 
short of perfection it accomplished its purpose. The flow-back system 
for ration currency became the key to the controls of all the rationing 
programs, and for those using stamps and coupons ration banking 
was the device by which the flow-back system was made to work. 
Ration banking would have operated more effectively if more OPA 
personnel had been available to service it, or if rationing had been 
less dynamic and complicated, or if there had been more time to work 
out the many problems that arose. But considering the wartime 
conditions under which it was carried out and the complex task that 
had to be performed, the system achieved its purpose to a surprisingly 
high degree. 




o 




I 














